Grow or Go: Taking a portfolio approach to growth

Taking a portfolio approach to growth

In today’s insurance environment, victory belongs to the bold. Margins are under pressure and competition is heating up; insurers can no longer afford to sit on businesses that are under-performing or subscale.

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Global Head of Insurance Deal Advisory

KPMG in the U.S.

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Time for bold decisions

Facing continued low interest rates, growing rate pressures in the property and casualty (P&C) sector and high levels of competition in both the P&C and Life sectors, it seems clear that margins will continue to face downward pressure for the near future.

Not surprisingly, many insurers have already undertaken massive cost reduction initiatives in an attempt to shore up margins. And now, with little room left to cut, some are starting to take a more critical and strategic view of their business as a whole. 

Our experience suggests that insurers now need to take bold action and make difficult decisions if they hope to create shareholder value and grow their business. The reality is that too many insurers are carrying businesses that are sub-scale, underperforming or simply distracting for management.

Taking a portfolio view

There are significant opportunities for insurers to enhance shareholder value by taking a portfolio view of their assets. And, in doing so, insurance organizations should be able to make clear decisions about whether to ‘go’ (i.e. exit those markets and businesses that do not meet the strategic objectives of the organization) or ‘grow’ (i.e. commit to targeted investment to drive transformational change and improvement initiatives that will allow the business to compete effectively).

Indeed, by looking at businesses as a portfolio of assets insurance executives should be able to:

  • properly assess each businesses’ strategic fit, performance and synergies
  • identify opportunities to improve the business through portfolio realignment
  • gain insight needed to prepare a fix, close or sell strategy that drives a clear approach for non-core assets
  • move through to a robust execution plan with appropriate governance.

Questions to consider when assessing businesses and local operations

  1. Does the business or operation meet the group profitability and return on equity (ROE) thresholds?
  2. Can the business realistically achieve ‘above average’ market share growth?
  3. Does the business or operation target customer segments that play to your strengths?
  4. Does the distribution strategy support the broader strategic goals of your organization?
  5. Does the business or operation create value within a diversified strategy?
  6. Does the business or operation allow management to focus on strategic objectives?

If you answered no to any of these questions, then it may be time to make a ‘grow or go’ decision.

M&A for Insurers

KPMG’s global insurance practice is well equipped to guide insurers through successful M&A activities including structuring and valuation.

 
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