China ranks 2nd as top national destination for M&A after the US; 84 percent of global surveyed insurers plan to make up to three acquisitions in 2017
The global insurance industry - China and the US in particular - is expected to see a rise in the number of merger and acquisitions in 2017, mainly driven by the need to transform business and operating models, finds a recent KPMG global survey.
The report, titled The new deal: Strategy-aligned M&A to drive insurance transformation, highlights that 84 percent of insurers surveyed are planning to make one to three acquisitions in 2017, and 94 percent are planning at least one divestiture; two-thirds of insurers said they expect to undertake a cross-border acquisition.
The report is based on a survey of 200 global insurance executives on their perspectives and outlook for M&A, corporate strategy and innovation over the coming 12 months. It finds that almost a quarter of them ranked the US as their top national destination for acquisitions, followed by China (12 percent). On a regional basis, 47 percent of respondents indicated they will focus on Asia Pacific for acquisition opportunities, more than twice the percentage for North America.
Paul Melody, Head of Actuarial Services, Asia Pacific, KPMG China, says: “The emerging markets of Indonesia, India and China remain largely untapped in terms of their premium density — low levels of insurance premium per capita combined with large domestic populations, present significant opportunities for additional scale in the medium to long term. There are significant coverage gaps across the region, making these markets prime targets for insurers looking to diversify and grow.”
In terms of reasons for acquisition, transforming and enhancing their existing business models were identified by 33 percent of global insurers as key drivers, respectively.
The report also suggests that insurers are taking a number of paths to secure transformative deals. Corporate venture capital (VC), in particular, is gaining traction with 62 percent of insurers saying they are either already active or currently setting up a corporate venture capability as a way to build technical capabilities. More than a quarter of the existing VC funds claim more than US$1 billion in allocated funding.
Additionally, partnerships are viewed as critical for operational transformation, according to the survey. Eighty-seven percent and 76 percent of insurers indicated that they will seek partnerships for new operating capabilities and to access new technology infrastructure, respectively.
The research indicates many insurers are looking for new partnership opportunities. Joan Wong, Partner and Asia Pacific Lead of Insurance Deal Advisory, KPMG China, says: “China already boasts a fairly mature partnership ecosystem between national banks and insurers. As a result, many of the partnerships now being forged in China will be focused on acquisitions in alternative and aligned segments in the fintech and e-commerce space.”
At the same time, Chinese insurers are beginning to look to the US and other mature markets to gain access to know-how and capabilities in order to expand their domestic insurance infrastructure.
Melody concludes: “Across both life and non-life sectors in Asia, the premium-flow projections are set to be positive over the next few years. The industry as a whole is set for rapid transformation, and property and casualty could be at the forefront of that change. Things like motor, home, travel and health insurance can increasingly become intertwined with risk management and risk prevention techniques daily, and also be more commoditised.”
In Q4 2016, KPMG commissioned a survey of 200 global insurance executives to learn about their opinions and plans regarding M&A, corporate strategy, and innovation over the coming 12 months. The survey respondents were divided regionally among firms in Asia-Pacific (33%), Europe, Middle East + Africa (33%), and North America (33%) as well as by the segments Life (25%), Non-Life (25%), Reinsurance (25%), and Other (25%). (The segment ‘Other’ encompasses Insurance Brokers and Insurance Services.) Companies needed to have a minimum of US$1.5bn in annual revenue to qualify for participation.
KPMG China operates in 16 cities across China, with around 10,000 partners and staff in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 152 countries and regions, and have 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.
Greater alignment between M&A, corporate development and strategy needed to drive long-term value from deal activity for insurers