Global Insurance M&A News: December 2014

December 2014 – Insurance M&A news: Issue 4

In this issue we take a look back at 2014 and the trends that shaped the M&A insurance landscape.

Global Head of Insurance Deal Advisory

KPMG in the U.S.


Related content

December 2014

A Year in Review

At the start of the year we made 10 predictions around how mergers and acquisitions would impact the insurance sector. In the article below, we look back to see how closely our predictions aligned with market activities.

Pleasingly, in many aspects we were proved correct, although the pace of development in certain areas has surprised us. M&A has clearly been an important component for many in the industry in delivering their strategic ambitions.

2014 predicted trends and how they played out

Opportunities created through dramatic shifts in technology use:

We predicted that high growth markets, without constraints of legacy products and infrastructure, could lead the charge, particularly by leveraging mobile technology and expanding upon the success of telematics in motor to property. We also anticipated investment opportunities being created through partnerships, joint ventures and acquisition of innovators by traditional players.

While the importance of leveraging technology to support a customer centric approach remains a key focus for many in the industry, we did not see many examples of insurers using M&A to build capability. The current approach has been on developing in-house capability and partnerships with companies that already provide the specific capability such as data mining and data analytics to identify consumer buying habits.

Increasing activity and competition from private equity and non-corporate acquirers:

We anticipated that current market incumbents would experience increasing competition from private equity, funds, and in some instances pension funds, buyers in both mature and high growth markets, building on the momentum of recent deals.

This prediction was spot on. Private equity buyers have been very active, particularly in the US, Asia and European markets with a large number of acquisitions in manufacturing, distribution and service related sectors. In the US private equity players were involved in a nearly a third of deals in 2014. In addition we saw further activity from alternative capital providers taking direct positions in the sector.

Asia remains a competitive, heavily penetrated market but opportunities remain:

We predicted more selective activity as organizations assessed which markets are core for their business and what is the best entry model and partner to capitalize on the primary opportunity. We also felt that underlying fundamentals would continue to attract interest in China, India and Indonesia, particularly as the developing regulatory environment opens up the market.

Throughout 2014 we have seen a number of insurers making targeted acquisitions to support their growth ambitions in the region. As expected, China and Indonesia continued to see a relatively high level of deals. We have also seen a number of insurers rationalizing their portfolio and exiting businesses or markets that are subscale, underperforming or not considered strategically important.

Continued activity expected in Latin America:

We anticipated increasing transaction activity in Latin America as insurers looked to secure position in these rapidly growing markets. 

Given the continued interest in the region, we were surprised that we didn’t see more activity in Latin America. The seemingly lack of activity could simply be a timing issue created by the long period to originate and close a deal. We will watch the region closely in 2015 and beyond.

Where next? Markets in Africa, Turkey, and the Middle East attract attention:

We expected to see countries in Africa and the Middle East attracting significant interest, prompting a rapid increase in M&A and distribution related transactions. We also predicted the continued evolution of alternative business models like micro insurance. 

We did see Insurers continue to expand their geographic footprint with Africa growing in prominence over the last 12 months. While In Asia, we see countries like Myanmar as part of the second or perhaps third horizon and ongoing developments related to special economic zones continue to attract interest from the insurance community. Additionally, micro insurance continues to be important both to governments and the insurance community across the region.

Regulatory change continues to act as a deal catalyst:

We predicted the continuing implementation of risk based capital and consumer protection initiatives will serve as a catalyst for change, creating investment opportunities. Specific initiatives like the Asset Quality Review for the banking sector will result in a more rigorous assessment of whether insurance businesses are considered core or could be sold. 

While we believe we have the spirit of this prediction correct, regulation has proven to be a barrier to deals, or perhaps more accurately, uncertainty around the timing and scope of regulation has created a more difficult deal environment. This is certainly true in Europe where a lack of clarity around Solvency II capital structures prevented a number of transactions from completing. However, we firmly believe both prudential and conduct regulation will be a key driver of activity over the coming years.

Rising inbound M&A interest into mature markets:

In a reversal of recent deal flow, we expected more inbound investment to mature markets.

This prediction has definitely been proven correct by events throughout the year, with a number of large deals undertaken by companies based in Asia in to both North American and European markets. Perhaps the best example is Fosun from China, which has made acquisitions in Portugal and Bermuda.

Traditional insurers exit legacy segments/sell non-core books to focus on growth and capital redeployment:

We forecasted a greater focus on the management of in-force business, leading to improved internal performance but also sales to specialist carriers that can leverage technology and scale benefits. Although the challenges are significant, opportunity exists to create a pan-European platform to consolidate legacy and closed book portfolios.

We have seen effective management of in-force remaining a key focus for the industry, both from a cost and efficiency perspective, but also for those looking to enhance revenue through up-sell and cross-sell opportunities. While transaction activity has been limited, there are definitely some good examples.

Opportunities to create core infrastructure in high growth markets:

With many of the high growth markets lacking the core infrastructure to support ongoing sectorial development, including central clearing houses and data availability and integrity, we anticipated the development of this infrastructure would create investment opportunities. 

While we have not seen this play out yet, the opportunity remains. Perhaps the development of this type of infrastructure will ultimately be driven by government and other investors rather than the insurance community.

Access to data changes results in new partnerships and business models:

We expected to see partnerships established in order to capitalize on data driven business models (eg. Google, Amazon, Apple, retailers) resulting in a fundamental change in the way insurance is bought and sold. Traditional incumbents must react. 

While leveraging technology is a critical part of many insurer’s growth strategy, at this point in time, we haven’t seen the transformational impact of new entrants originally expected. However, the industry needs to prepare for a new way of doing business with the next generation of consumers. We will be watching developments in this area closely through 2015 and beyond.

Articles & publications – Leading the field with industry insight

The publication "A year in review: Drivers and trends that shaped insurance M&A in 2014" provides an in-depth coverage of 2014 M&A activity related to our original predictions, including examples from around the world.

As we reach the end of the year, we would like to take the opportunity to extend our thanks to our clients. We wish you an enjoyable festive period and look forward to continuing our relationship in the new year.

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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