Insurance industry expects rise in strategic acquisitions, says survey

The 2014 Insurance Industry Outlook Survey (36-page / 2.18 MB PDF) by US audit, tax and advisory services firm KPMG said more insurers are already eyeing strategic acquisitions this year.

In its survey of 95 US-based senior insurance executives, KPMG said 54% of respondents indicated that they expected to be involved in a merger or acquisition as a buyer over the next year. KPMG said this was a “significant” increase compared to 34% in its 2013 survey.

Of the 54%, 19% said they were “very likely” to be involved in a merger or acquisition as a buyer, up from 10% last year, while 35% said “somewhat likely,” an increase from 24% in 2013. The number of respondents who said they had no plans for M&A activity “dropped substantially” from 41% in 2013 to 21% in 2014.

The national leader of KPMG’s insurance practice Laura Hay said M&A activity “is expected to ramp up in the next year as insurers leverage their strong capital positions to seek profitable growth, enter new markets and rationalise non-core operations”.

Hay said: “Property and casualty (P&C) insurers are acquiring companies with enhanced technology platforms to gain a competitive edge and view M&A as a crucial means to increase their distribution capacity. Meanwhile, life insurers are expanding their traditional product portfolio to include annuity and investment management capabilities to address the needs of baby boomer retirees.”

According to the survey, when asked to identify the highest-priority investment area for their company over the next year, respondents most frequently cited “strategic acquisitions” (34% compared to 22% in 2013), followed by “customer programmes” (25% compared to 23% previously), and “information technology” (24%). 

KPMG said that over the next two years insurers are primarily looking to boost their technology investments for “customer growth and customer service” (27%), “data and predictive analytics” (26%) and “risk modelling and analysis” (24%).

However, cost continues to be the primary challenge to implementing and supporting more sophisticated data and analytics, according to 37% of respondents.

KPMG’s insurance sector lead partner for transactions and restructuring Ram Menon said: “The global regulatory landscape continues to emerge as a key deal catalyst as insurers consider the continued implementation of risk based capital and capital management initiatives.”

Menon said: “Initiatives like the asset quality review for the banking sector in Europe are expected to result in a more rigorous assessment of whether insurance businesses are considered core or should be sold. In addition, high growth countries like China, India and some Latin American jurisdictions, which do not have enough capacity to meet the needs of retirees, are in discussions to relax regulatory barriers to encourage foreign direct investment.”

KPMG said the survey was conducted from February until April 2014 and 31% of respondents were senior vice-presidents, vice-presidents or directors. Based on revenue in the most recent fiscal year, 29% of respondents worked for companies with annual revenues exceeding $10bn.