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Three-Quarters of Global Insurers Expect M&A Increase: Survey

An industry-wide focus on diversification is expected to boost M&A transactions through 2014, according to Towers Watson.

M&A activity is gaining popularity among insurers, according to a study by professional services company Towers Watson and global intelligence provider Mergermarket.

The survey reached 255 senior executives from life, P&C, and composite insurers around the world. Seventy-seven percent of respondents predicted an increase in insurance M&A in the next one to three years. Seventy-three percent plan M&A deals over the next three years; but just 44% have completed one in the past three years.

[ In recent M&A activity:Hellman & Friedman Acquire Applied Systems. ]

Reasons behind M&A transactions varied among insurers. General economies of scale had the most impact on life insurance deals. Most respondents in P&C, composite, and reinsurance firms grew by expanding into new locations and business segments, a trend expected to continue in coming years.

“We are in a very significant era of unusual opportunities,” said Jack L. Gibson, managing director and global head of M&A in Towers Watson’s insurance consulting division. Global businesses are recovering from the “unnatural slowness” that followed the 2008 economic crisis and focusing on multi-line, multi-territory, and multi-region diversification to seek new customer segments and forms of distribution.

Geographical diversification is a growing trend. “When you look at changes in economic trends, having a broad geographic footprint can make a company less susceptible to local troubles,” Gibson explained.

The Asia-Pacific region holds the greatest growth potential for future M&A activity, according to the report. Markets such as Malaysia and Indonesia boast growing wealth but smaller insured populations, which appeals to insurers looking to sell.

Firms planning M&A transactions will face challenges, particularly valuation gaps. Survey results showed that acquirers, on average, sought a 15% return on capital. Just a fifth of respondents are planning to divest operations in the next three years. Fewer divestment plans and increased acquisitions could lead to increased competition for assets and higher valuations, Gibson explained. Other challenges include macroeconomic uncertainty and capital constraints.

Kelly Sheridan is the Staff Editor at Dark Reading, where she focuses on cybersecurity news and analysis. She is a business technology journalist who previously reported for InformationWeek, where she covered Microsoft, and Insurance & Technology, where she covered financial ... View Full Bio

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