Insurers use M&A for market repositioning

There is a shift in the character of insurer merger and acquisition (M&A) towards a tactical repositioning in the market, according to a new report by investment management firm Conning.

Whereas as recently as 2015, there were landmark transformative consolidation transactions among primary insurers and reinsurers, in 2017, most of the activity was tactical, states the report titled Global Insurer Mergers & Acquisitions in 2017. In 2017, activity mainly featured bolt-on property/casualty specialty acquisitions, run-off dispositions in both the life and property/casualty sectors, and vertical integration in the health/managed care sector.

Large-scale consolidations were rare. The recurring theme seen in many transactions was tactically driven divestitures and acquisitions to reposition insurers to face the future, the report says. Building an “all things to all people” insurance supermarket was clearly out of vogue, and insurers actively exited underperforming lines and entered specialty segments offering healthier growth and margin prospects.

Factors hindering traditional consolidation activity in 2017 included uncertainty surrounding unfolding US political and regulatory developments and some would-be property/casualty acquirers still preoccupied with integrating large acquisitions made in recent years.

Global M&A activity levels involving acquisition of insurers in 2017 were relatively unchanged from 2016. In 2017, there were 159 transactions representing $40.2 billion in aggregate value, excluding the $68.7 billion acquisition of Aetna by CVS. Including the Aetna acquisition, the aggregate value was $108.9 billion. This compares to 158 transactions representing $35.3 billion in aggregate announced value in 2016.

In 2018, property/casualty insurer M&A activity targeting specialty insurers or niche business lines, as well as life insurers carving out or running off underperforming units, will remain strong themes, according to Conning. This trend creates insurers with sharper focus and is likely to continue and strengthen beyond 2018 as insurers avail themselves of richer data and analytics to provide products and services in line with customers’ rising expectations.

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