The insurance industry recorded approximately $143.5 billion worth of merger and acquisition (M&A) transactions in 2015, almost triple the dollar value of deals in 2014, according to a recent report published by Willis Towers Watson titled “Defying Gravity: Insurance M&A on the Rise.”
The report is based on responses from 750 senior-level executives in the property/casualty and life insurance sectors from companies across the Americas, Asia, and Europe, the Middle East and Africa (EMEA) regions.
It details the driving factors behind the increase in M&A activity in the insurance industry.
The top three motivators for M&A deals are identified as follows:
- Access to a target’s book of business and its market leadership ranking was cited by 48 percent of both the property/casualty and life insurance respondents;
- Product line diversification was a goal for 34 percent of the property/casualty insurers, and;
- Distribution channels were also important to 28 percent of respondents.
Other key findings of the report include:
- Top-line growth is the key driver of deals and the most important consideration when valuing an acquisition.
- A surge in consolidation within the insurance industry has led to a rise in megadeals, as more insurers expect to focus their activity in core markets.
- Much is still to be learned by new and seasoned dealmakers alike. As M&A activity continues to rise, so too will the “best practices” and knowledge of what works and what doesn’t.
Distribution options and a quest for new technologies account for more than a third of M&A activity. Some insurers are using acquisitions to gain an automation advantage as they seek to develop online platforms and expand their technical capabilities.
Although the survey showed that 92 percent of the deals took place in regions where insurers already had existing operations, a managing director at Willis Towers Watson in New York, noted the recent trend of Asian insurers buying into the U.S. “There have been several deals by Japanese and Chinese insurers buying in …. Over time there may be some other acquisitions, but it may take a three- to five-year time period,” he notes.
The popularity of acquisitions as a strategic growth strategy in the insurance industry is likely to continue, according to the survey, with most respondents (82 percent) expected to make an acquisition in the next three years.
Click on the link to read more about the survey titled, Defying gravity: Insurance M&A on the Rise.”
About The Author
Bill Hager is an insurance and reinsurance expert and arbitrator. He is President of Insurance Metrics Corp. and also an elected member of the Florida House of Representatives, where he serves on the Insurance and other committees.
Mr. Hager is a former Insurance Commissioner for the State of Iowa, and former President of NCCI, Inc., the nation’s largest workers’ compensation rate corporation.
As a regulator for eight years in five positions ((i) Assistant Attorney General assigned to the Department of Insurance, (ii) First Deputy Commissioner of Insurance, (iii) Iowa Commissioner of Insurance, (iv) Administrative Law Judge, and (v) Executive and Member of the National Association of Insurance Commissioners), Mr. Hager, along with his staff, approved (or disapproved) of the language of most all insurance policies used by each of the 1,500 insurance companies doing business in the state.
This regulatory action also included the approval of policy application forms.
In all of the general statements here, see the state law of the controlling jurisdiction. Every case is different and circumstances vary widely depending on the governing state law, policy provisions, and related considerations.
This blog is provided for educational purposes only. It is not intended to provide legal advice or an opinion in regard to any topic discussed. The blog should not be used as a substitute for legal advice from a licensed attorney in your state.