The reason we are seeing a fair amount of mergers and acquisitions (M&A) in insurance and reinsurance sector is down to the fact that organic growth is not getting any easier to find, according to analysts at Morgan Stanley.
As a result, the types of mergers or acquisitions being seen are often bolt-on deals, where clear synergies can be found due to expansion opportunities, branching out into new lines of business, or where new teams can be brought on-board to give a re/insurer a new specialism and access to an existing market footprint.
These are easier M&A deals to consummate as a result, with less overlap between the parties making the fit easier and requiring less rationalisation of resources and other assets that come over with the deal.
In recent weeks we’ve reported on numerous M&A stories, some actual deals, some coming from the rumour mill.
Alongside M&A, insurers and reinsurers are also making disposals of assets, tidying up their internal operations and setting up new internal risk transfer programs, all with the aim of squeezing out a little more earnings per share.
Morgan Stanley analyst and Executive Director Ignacio Moreno highlights this as the goal of M&A activity, saying, “You want easy to integrate deals that can generate synergies to provide an uplift to EPS.”
Moreno notes that currently in insurance and reinsurance, “There is no organic growth, EPS improvements are taking place due to accounting adjustments than operating trends.”
Where M&A deals have offered a good return on invested capital, Moreno says, “It is all about EPS accretion.”
Large European insurers and reinsurers have all been pointing to localised, bolt-on deals, largely in the P&C space, Moreno explained.
Some of the larger players also look to emerging market bolt-on deals, but Moreno says that these are less easy to integrate and can be expensive.
There continues to be interest in M&A from Asian buyers as well, Moreno says, with some high-profile potential targets that would deliver great franchises to Chinese and Japanese buyers, among other nationalities.
In reinsurance it is less clear, although the discussions between Swiss Re and SoftBank and the rumours surrounding XL both spark the imagination.
“Structurally the revenue pools are declining, everyone has excess capital and they would like to diversify. It will be interesting to see which areas they pick,” Moreno said.
Read all of our mergers & acquisitions coverage here.
