Look for 2017 to be the year of the deal — at least in the insurance industry.
A new report from KPMG International in association with Mergermarket, “The New Deal: Driving Insurance Transformation with Strategy-aligned M&A,” predicts insurers will be looking to buy and to sell in the course of the year, with 84 percent of insurance companies planning to make between one and three acquisitions in 2017, while 94 percent plan at least one divestiture.
U.S. & China top destinations for acquisitions
Two-thirds of respondents to the survey of 200 global insurance decisionmakers also say they plan a cross-border acquisition this year, with the U.S. the top national destination for acquisitions; China follows.
But considered by region, Asia-Pacific tops the list, with 47 percent looking at the region for acquisitions that’s more than twice the percentage for North America. Western Europe is viewed as the divestiture opportunity capital. Most prefer to stick close to home, with 92 percent ranking their ability to handle domestic transactions as high, while 77 percent rate their ability regarding cross-border acquisitions in the moderate-to-low range.
Still, cross-border activity is expected to increase as insurers globally work on diversification of their geographic risks and earnings profiles. Since global economic growth is stagnating and mature and emerging markets both offering changing geopolitical risks, insurers are looking outside domestic borders to buy or sell assets.
Transforming business & operating models
Why the drive to acquire? No matter where insurers are located, trends indicate that an organic approach won’t cut it in driving long-term growth. And their goals are big. Thirty-three percent of insurers cite transformation of their business model, with an equal percentage looking to enhance and transform their existing operating model.
Insurers are also regarding partnerships as critical for operational transformation; 87 percent of insurers will be partnering to add new operating capabilities, while 76 percent aiming instead to access new technology infrastructure. They’re also looking at portfolio shaping and ways to boost value.
Strategic vs. opportunistic approach to M&A
While business transformation is a strategic need, insurers aren’t necessarily viewing it that way, with the report finding that many are still taking an opportunistic approach to M&A. Only 47 percent of insurers that have dedicated M&A teams say that deal identification objectives are aligned with their corporate strategy. Thirty-seven percent admit that they’re reacting rather than making deals proactively.
Corporate venture capital is playing a major role, with 62 percent of insurers either active in, or setting up, a corporate venture capability. And some are committing major resources to the effort, with 26 percent of those with venture capital activities having more than $1 billion in allocated funding. But that doesn’t necessarily mean all of that funding is going to be devoted to traditional sector investments — in the quest for innovation, more than half of respondents with established VC funds say that they’re focused on noninsurance technologies.
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