Insurers are on the road to strategy-aligned deal-making

Insurers on the road to strategy-aligned deal-making

As insurers transform, aligning M&A with corporate strategy can optimise deal value.

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National Sector Leader, Insurance and Chairman of KPMG New South Wales

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With disruption transforming the insurance industry, deal activity is expected to rise. In a recent global survey of more than 200 insurance organisations, 84 percent think they will undertake one to three acquisitions over the coming year.

The single biggest driver of insurance deals is business transformation: 33 percent of insurers say they intend to undertake M&A to redefine their business and operating model, and 40 percent plan to enter partnerships and alliances.

A strategy-aligned deal approach is emerging for insurers

Strategy-aligned M&A brings more clarity over future markets, geographies, products and channels. This in turn helps to identify the processes, technology infrastructure, talent and culture to support growth.

To gain more value from acquisitions, insurers need to improve their data and analytics-enabled deal-evaluation capabilities, especially for due diligence, integration and separation.

Insurance decision-makers recognise the importance of a strategic mindset: 39 percent of firms say aligning deal evaluation process to strategic objectives is key to M&A success. But many also admit that they have not achieved this alignment, with deals often being reactive.

No better time for an insurance M&A ‘playbook’

An enterprise-wide insurance M&A ‘playbook’ can improve insurers’ deal value by evaluating the strategic fit of any targets. Such a playbook should cover due diligence, deal evaluation and post-deal integration/separation.

Partnerships and alliances can also transform the business model: 87 percent of organisations expect to partner to access new operating capabilities, and 76 percent to open up new technology infrastructure.

Asia-Pacific expects to see the most partnerships and alliances in insurance, with China and India the top two destinations. And most respondents say they intend to partner with larger firms of US$250 million to US$1 billion.

Another trend is in-house corporate venture capital (CVC) investment capabilities, to invest in innovative, and mostly non-insurance, technologies.

Seven steps to a strategy-aligned deal environment

  1. Identify and prioritise the primary synergies of a deal, including the unique synergies that only your company can create
  2. Identify targets with unique strategic fit and value creation potential.
  3. Conduct due diligence that is focused on the strategically relevant parts of the business.
  4. Value targets based on how they fit uniquely with your business (rather than just rely on average ‘multiples’).
  5. Select an appropriate deal type and structure to realise your competitive strategy.
  6. Plan for an integration approach that will foster the unique synergies that you will create and achieve maximal value capture.
  7. Set in place post-transaction performance assessments that track value creation on an ongoing basis.

Trends shaping insurance deal-making

Insurers cannot halt disruption; but they can take a more effective route to transformation, by considering how to get more out of their deals:

  • Innovation increasingly influences insurers’ deal rationale: companies with a strong digital model, and startups with advanced technology, will be popular targets
  • Aligning corporate strategy and M&A objectives gives buyers an edge: giving insurers better deal outcomes than for reactive deals
  • Insurers’ portfolio rationalisation and strategic repositioning drives M&A activity: divesting non-core business segments/geographies is a likely key driver behind higher deal activity
  • Increased cross-border activity to diversify insurers’ geographic risks and earnings: due to stagnating economic growth and changing geo-political risks.

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