Competition for M&A in insurance industry heating up

17 February 2016

Merger and acquisition activity in the insurance industry is forecasted to rise in 2016, according to a new study by Willis Towers Watson in collaboration with Mergermarket. As demand for deals exceeds the supply – 82% of insurance companies plans completing one or more transactions, while only a third are considering divesting – the heated market is set to drive prices up and spark bidding wars.

Globally the M&A market is still shaking from the records that were broken in 2015. According to an analysis from McKinsey & Company, the M&A market nearly hit the $5 billion mark last year, lifted by favourable deal fundamentals and a large rise in the number of megadeals – transactions with a value of above $5 billion. 

In 2016 the M&A market is set to remain buoyant, reveal several reports released over the past weeks, including a research launched last week by KPMG, which showed that executives anticipate more deals, at a higher price, across industries. In a new study by Willis Towers Watson, conducted together with deals platform Mergermarket, the researchers delve specifically into the M&A developments in the insurance industry. Looking back, they find that 2015 was an absolute bumper year – 230 deals were closed with a total deal value of €129 billion. Top-line revenue growth was the leading driver of M&A activity, followed by enhancing the market position and increasing the customer base. In addition, consolidation – particularly in the US and speciality lines – spurred a rise in the number of megadeals to four compared to just one the year previous. In 2014 deal value amounted to €41 billion, while the year previous, it stood at €27 billion. In terms of the number of deals concluded, 2015 lagged several other years, including 2007, the year which still holds the record at 275 transactions. 

Looking ahead, the researchers find that across the globe 82% of insurers are planning one or more acquisitions in the coming three years. “We expect a significant consolidation in the insurance industry. On top of that we expect that a growing number of deals in the market will be driven by Solvency II,” says Harm Blaak, Leader Risk Consulting and Software for North, Central and Eastern Europe at Willis Towers Watson.

The growing deal appetite will however come with a price tag. The gap between the number of firms wanting to buy and those willing to sell is large, finds the study, and as a result the competition for transactions will heat up. “Incumbent local insurers are fighting hard, international competitors are also trying to cherry-pick the best deals, and an increasing threat is posed by emerging players such as private equity and non-insurance investors from Asia.”