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The Actuary The magazine of the Institute & Faculty of Actuaries

M&A deal value set to soar in 2017

The insurance industry has seen a spike in the number of ‘mega deal’ mergers and acquisitions (M&A) this year, with the trend expected to continue to 2020.

M&A activity reflecting impact of technology / iStock
M&A activity reflecting impact of technology ©iStock

That is according to research released today by Willis Towers Watson (WLTW), which shows 11 deals worth more than $500m (£382m) took place in the first half of 2017, compared with just 14 over the whole of last year.

This is reflected in the value of M&A activity increasing by 170% in the first six months of this year compared with the same period in 2016, despite volume falling by 17.7%.

In addition, 17% of senior-level executives in the insurance industry expect to complete at least one major acquisition by 2020, compared with 8% that made such a deal in the previous three years.

“A number of companies have made large acquisitions in the past two years and have been in integration mode," WLTW consulting actuary, Fergal O’Shea, said. "Once that completes, they can turn from being internally focused back to M&A.”

Gaining a strong brand was found to be the biggest motivation for undertaking an acquisition over the next three years, which is thought to reflect the impact of technology and the internet.

The web is now the primary distribution network for companies, but transition to digital sales requires a recognisable brand, according to WLTW, saying this can be just as important as competitive pricing.

“M&A in the insurance industry will be driven by the need to create synergies, build brands and tackle technological advances,” O’Shea continued. “However, as our research shows, companies will be searching for quality over quantity.”

Although only 17% of senior-level executives say M&A has produced 3% or more annual growth in earnings per share over the previous three years – dealmakers are optimistic about the future.

Some 52% of firms expect M&A activity to drive growth over the next three years, with 63% anticipating it to result in increased earnings of between 2% and 3% in the future.

“Caught between the ongoing pressures of tepid growth in premiums, low interest rates, and the burden of regulatory requirements, insurers must ensure they are making the most efficient possible use of their capital,” O’Shea said.

“Those who pay the closest attention to their strategic aims, and how managing their capital and pursuing M&A can underpin those goals, will have the best chance of success.”

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