Re/insurance M&A activity to pick up after pause in 2016
Deal volumes in mergers and acquisitions (M&A) are likely to be lower this year as merger activity takes a break because the industry is focusing on developing strategies and rebalancing portfolios in line with Solvency II rules. But there are many reasons to believe that activity is going to pick up again soon.
“Aggregate deal values are likely to be lower in 2016 as re/insurers concentrate on reorganising their portfolios, potentially divesting some assets and acquiring others,” said Richard Baddon, insurance M&A partner at Deloitte. “New top management at many large incumbents is another driver,” he noted.
“There have been quite a few reshuffles at the top of re/insurers recently, and particularly the large players are busy adapting their strategies and thinking about what types of acquisition targets would make sense,” said Pia Tischhauser, senior partner, insurance practice global leader at Boston Consulting Group.
For example, Christian Mumenthaler became the group chief executive officer (CEO) of Swiss Re on July 1, 2016.
Munich Re’s CEO Nikolaus von Bomhard is about to be replaced by Joachim Wenning.
Mario Greco took over the top position at Zurich Insurance Group in May and Oliver Bäte is still fairly new as head of Allianz.
“No CEO coming in makes an acquisition as his or her first act,” Tischhauser said. This is one of the reasons M&A activity, from a total deal value perspective, is likely to slow down in 2016.
“Management attention is directed to strategy and defining what could be potential acquisition targets,” she explained. “2016 will therefore be interesting for insurance M&A as it will be characterised by players defining targets and strategy resulting in a lot of M&A activity in the next two to three years.”
Scale matters particularly in retail insurance, Tischhauser noted. “It is important because of the large investments needed in digitisation and data analytics,” she explained.
“Scale also matters in the reinsurance space. In reinsurance and the commercial insurance industry, either you are a streamlined, technically-oriented commercial insurer or reinsurer where you can successfully operate in the London Market, or you are a knowledge player like the top tier reinsurers, which invest heavily in data analytics in underwriting skills and advisory because they have to have the expertise to help primary insurers to analyse the data,” Tischhauser said.
According to a survey by Mergermarket, more than four in five (82 percent) insurers expect to make at least one acquisition in the next three years, as the desire to secure top-line growth remains in place, Willis Towers Watson said in a report named Defying gravity—Insurance M&A on the rise. Almost two-thirds of insurers say they are most often focused on companies that offer them an opportunity for market positioning or an increased customer base.
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