12 June 2017 Insurance

M&A and share buybacks on the rise in Europe's insurance sector: Survey

A surge in M&A and share buybacks could sweep Europe's insurance sector in 2017 with firms now considering both these options as a way to use surplus capital, according to a report by Moody's Investors Service.

The report is based on the ratings agency’s most recent annual survey of European insurance sector chief financial officers (CFOs).

Low interest rates remained the single biggest worry for the industry, according to the survey based on responses from 18 insurers, including many of the largest European multinationals.

"With large European insurers reporting solid levels of capital one year after the Solvency II regime took effect, CFOs are turning their attention toward the deployment of excess capital. Over 40 percent of CFOs surveyed are now looking for ways to deploy this surplus, up from just over 10 percent in 2016, with M&A and share buybacks the main options available to them," says Antonello Aquino, associate managing director at Moody's.

One third of survey respondents named prolonged low interest rates as the top challenge in 2017, down only slightly from last year, as insurers are still forced to reinvest maturing assets at lower rates of return than historical level. There is some increasing appetite for illiquid assets, with around 30 percent of respondents anticipating increasing exposure to real estate, private placements, infrastructure and mortgages/loans. Insurers have shifted gradually towards higher-yielding assets in response to low interest rates, a trend Moody's expects to continue.

Around 90 percent of respondents said they had made investments in technology to improve customers' access to their services, make greater use of "Big Data" and improve back office functionality. Insurers' next investment focus will likely be Artificial Intelligence and the Internet of Things, which refers to the interconnection via the Internet of computing devices embedded in everyday objects.

Insurance CFOs do not expect to issue large volume of debt in the next 24 months, with 44 percent of survey respondents saying that they expect to issue only sufficient debt to cover refinancing needs.

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