14 September 2016 Insurance

M&A will kick-start again in Q4—if right partners can be found

More mergers and acquisitions (M&A) are likely in the industry with deals going to emerge in the last quarter of 2016 and the first quarter of 2017, Arthur Wightman, PwC Bermuda leader and insurance leader for Bermuda & the Caribbean, told Monte Carlo Today.

“We won’t see the sort of mega deals we saw last year but the industry is very fragmented. If you are a big player or a niche player you are OK, but the middle tier players will be exposed to potential consolidation,” Wightman said.

The pause in M&A activity in the industry is largely because the industry has been digesting some of the previous mega deals and also watching to see how those pairings work out. He said valuations are being hindered by the industry’s lower profitability—especially if potential cat events are added in—but they will not prevent deals happening on that basis alone.

“The main thing slowing consolidation is simply the fact that people are focused on trying to find the right partner,” Wightman said. “We have seen some very good deals such as ACE-Chubb where the companies have great synergies. People need to feel confident they have found the right strategic partner.”

He added that the market should take many positives from the fact that there remains so much uninsured risk in the world, offering the industry great growth potential.

It is estimated that only between 10 and 14 percent of all risks are insured.

“We are all swimming around the same bait ball yet we have the whole of the ocean to explore,” Wightman said.

“Margins are thin in traditional lines of business so we need to invest more heavily in exploring these potential new markets.”

He added that collaboration with bodies such as the World Bank and the UN could help open up some markets.

“We also need to convince governments to hive off more risk and more innovation around how we manage that,” he said. “There are pockets of innovation in the industry, around insurance-linked securities for instance, but we need more.”

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