Ernst & Young (EY) has predicted that global Merger & Acquisition (M&A) trends for insurers and reinsurers are likely to accelerate over 2018 and beyond as companies look to transform, despite a slump in activity last year.
EY notes that, although deal activity has steadily grown in recent years, 2017 saw a reduction in strategic M&A, with figures appearing broadly comparable to 2016, in part due to a number of global uncertainties.
However, it suggests that re/insurance companies exhibited many signs that they are still looking to transform, and maintains that business acquisitions and disposals will remain a key element of transformation in the future.
EY points to examples of ‘portfolio optimisation’ or simplification of existing legacy business in many companies, and asserts that this process of rationalizing legacy commitments is a critical preparatory stage that will precede more forward-looking transformation.
Additionally, the desire for transformation is evidenced through continued investment in new technologies, and there are early signs of industry convergence as technology companies likewise begin to invest in re/insurance.
However, convergence represents both a huge opportunity and an existential threat for re/insurers, as players from outside the sector begin to compete for roles in the value chain.
The report also suggests that, as re/insurers increasingly begin to operate in technologically enabled digital ecosystems, M&A activity may take innovative new forms and require a whole new range of skills from the teams that support it.
Continued successful M&A will thus come from companies who can address fast-changing opportunities by establishing diverse teams that combine the existing knowledge and experience of their own organisations with the developing talent in new centres of innovation.
Whatever form acquisitions do take, EY asserts that the question of ‘buy or build?’ will remain central to re/insurance M&A decisions, and will continue to underpin consolidation and the targeted acquisition of capabilities.