A quarter of insurers seeking acquisitions

Global insurers are regaining their appetite for mergers and acquisitions, with a steady flow of midmarket transactions anticipated, according to a report by Deutsche Asset & Wealth Management.

The semi-annual report on developments in the insurance investment market said: “While M&A volumes are not expected to reach the levels seen in the last decade they are forecast to report positive momentum, a trend support by continued interest from private equity investors.”

M&A activity increased in the first half of 2013, with the top 20 largest insurers globally announcing M&A deals of $16.6 billion, up from $15.5 billion in the first half of 2012, but overall activity was down 29 percent year over year, according to figures supplied by Clyde & Co.

Some 362 transactions were completed from July 2012 to June 2013, compared with 510 deals the previous year, the fewest in four years. US transactions declined 40 percent, while deals in Europe slid 33 percent. Asia was little changed, with 57 deals versus 58 in 2012.

Deals are expected to be driven by the desire to access new markets, better manage regulatory changes, and gain product synergies with bolt-on acquisitions to access distribution channels and niche operations.

However, PwC warns in the report that low industry profitability is making raising capital harder and as a result, insurers may find shareholders less amenable to strategic deals.

The report has predicted that one quarter of insurers will grow their businesses via acquisitions, with their home regions the key target areas for future organic and acquisitive growth.

Over time, PwC anticipates M&A will see insurers sort themselves into three groups: large international insurers with deep technical and financial resources; local and regional firms with distribution-led strategies; and niche players specializing in particular products or customers.