Re/insurance executives are actively pursuing mergers and acquisitions (M&A) deals to overcome sluggish industry growth, with companies increasingly looking for opportunities outside their country of domicile, according to financial advisory firm KPMG International.
KPMG recently surveyed 200 global re/insurance industry executives, finding that 80% were expecting to seek between one and three acquisition targets or partnership opportunities over the next three years.
Additionally, 66% of executives were expecting to conduct cross-border deals, with just 32% focused domestically, while 39% were anticipating cross-border partnerships and alliances over the next three years, compared to just 6% focusing on domestic alliances.
Laura Hay, Head of Global Insurance for KPMG International, said: “Insurers are competing for market share in a slow-growth environment, that is experiencing an influx of dynamic new insuretech players.
“They know they can’t rely just on organic growth to meet their objectives, so alliances and acquisitions become essential as insurers look to engage with customers in new and different ways, and gain access to innovative operating capabilities and technology infrastructure to reshape their business and drive future growth.”
A Senior Vice President for M&A at a global brokerage firm added: “Over a period of 3 years, we expect to see a lot of M&A transactions overseas. We are looking to expand into regions that are new for us and with acquisitions, you can get going without having to set up a base from scratch or encounter a lot of unforeseen risks.”
Most respondents predicted that North America, particularly the U.S, would experience the most M&A activity over the next three years, while Western Europe was expected to drive more divestiture activity.
In contrast, Latin America is expected to see relatively low levels of deal activity, as the region remains a “sellers’ market”, according to David Bunce, Senior Client Partner with KPMG in Brazil.
He explained: “Lots of international insurers want to get into certain Latin American markets, but nobody is really ready to sell.”
Asia-Pacific was identified as the geographic region where re/insurers would be most likely to seek partnership opportunities, with most respondent considering it an area of massive growth potential and innovation.
Joan Wong, Partner at KPMG China, stated: “As insurers seek to expand outside of their traditional distribution networks in Asia, digital partnerships are emerging as a fairly quick way to tap into new customer segments without significant upfront capital investment.
“A digital partnership could unlock significant new growth which would tip the balance for those making a ‘go or grow’ decision about their businesses.”
Although KPMG observed that most respondents were looking across their borders for growth, re/insurers in Asia-Pacific were generally more focused on domestic acquisitions.
“Most of the markets in Asia are still fairly domestically oriented and there is still significant fragmentation and inefficiency that could be eliminated,” said Stephen Bates, Partner at KPMG in Singapore.
“Given the growth potential across the region, it’s not surprising that Asian insurers are thinking about taking advantage of opportunities at home before investing further into foreign markets.”
