Willis Towers Watson survey predicts intensified M&A

Corporate risk and insurance managers need not panic about dwindling choice and competition, however, as much of the activity will come from the expansion of Asian and other emerging market insurers seeking to tap into international markets. The M&S report from Willis Towers Watson, itself the product of a recent merger between Willis and Towers Watson, was carried out in partnership with research firm Mergermarket. It is based on interviews with 750 senior insurance executives worldwide. The survey finds that competition for 'attractive assets' will intensify in the next three years as the majority of insurers surveyed (82%) plan to acquire.hideThe report noted that in 2015, top-line revenue growth was the leading driver of M&A activity in the insurance sector. Some €111.4bn worth of deals were completed in the first three quarters of the year, nearly three times that recorded in 2014. The survey found that almost half of respondents made their last major acquisition to enhance their market position and increase customer numbers. It also found that consolidation, particularly in the US and specialty lines, spurred a rise in the number of megadeals-worth more than €5bn-to four in 2015. Willis Towers Watson reported that this trend is expected to continue, with the vast majority (90%) of insurers in emerging Asia, central and eastern Europe, the Middle East, Latin America and Africa planning deals over the next three years. More than half of firms in western Europe, North America, Australasia and Lloyd's that took part in the survey expect to make at least one divestment before 2018. This is mainly because of consolidation and efficiency drives. Andy Staudt, EMEA P&C M&A leader at Willis Towers Watson, said: "Asian companies are looking to buy in Europe not because it's a high growth market, but because of the technology comparative advantage. There are systems in place, especially in the P&C space-such as IT structures, pricing algorithms and distribution tools-that European insurers can bring to the table and are very attractive to certain foreign entities that can take these skills back home." The survey also showed that insurers are setting higher deal criteria. Respondents are not willing to consider deals that offer a future return on capital of less than 13.8% in the P&C sector and 14.2% in the life sector. "If insurers are to stick to these higher minimum returns on capital criteria, they will need to be more selective initially, given that deal competition is expected to intensify, adding upward pressure on prices. Emerging players, such as private equity and non-insurance investors from Asia, represent an increasing challenge to local insurers," stated Willis Towers Watson. Fergal O'Shea, EMEA Life Insurance M&A leader at the firm, said: "Most analysts seem to sense the insurance sector is still oversold. Valuations are still attractive, though prices are hardening as capital comes in and sentiment improves towards insurance stocks. Given the scale of the competitive threat and its diversity, insurers engaging in M&A transactions will need clear strategies for dealing with potential rivals."

Willis Towers Watson survey predicts intensified M&A

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