European insurers appear to be emerging from the pandemic with a stronger appetite for mergers and acquisitions (M&A), according to a survey of Chief Financial Officers conducted by Moody’s.
Respondents seemed to indicate that mergers and acquisitions are increasingly being seen as a means of adapting business models to sluggish long-term economic growth and persistently low interest rates.
“More than half of the companies surveyed that plan to be involved in M&A see themselves as potential sellers, reflecting the recent trend of insurers divesting unprofitable units,” noted, Benjamin Serra, a Senior Vice President at Moody’s and the author of the report.
Moody’s survey of 21 insurance company CFOs showed that 62% of respondents expected to participate in M&A in the next two years, up from 40% in early 2020, prior to the coronavirus outbreak.
Moreover, most CFOs expect a rebound in earnings in 2021, supported by increases in P&C commercial prices, higher demand and a short-term economic recovery, while they foresee limited additional coronavirus losses.
The survey also showed insurers still expect to change their investment allocation, although the proportion of insurers planning to increase their investments in illiquid assets has dropped compared with a year ago.
The preferred illiquid asset classes remain infrastructure, followed by mortgage loans, and real estate.
Insurers are also preparing for IFRS17, which they anticipate will have a larger impact than other upcoming regulatory changes.
Around 50% of life companies expect a decrease in shareholders’ equity after the application of the new accounting regime, while the volatility in profits is also likely to increase.
