An increased regulatory burden from incoming Solvency II requirements could cause more smaller insurance companies to sell their businesses, warns Towers Watson.
Over the next three years more insurance companies in Europe, Middle East and Africa (EMEA) will see themselves as sellers of business units rather than buyers, according to a survey conducted in conjunction with intelligence provider Mergermarket.
Of the 264 senior insurance executives polled, three fifths said they expected to divest operations before 2017, up from just 20% a year ago.
However, the number of insurers who expected to make an acquisition in the next three years had fallen from over two thirds (69%) to well under half (42%).
Fergal O'Shea, EMEA Life Insurance M&A leader for Towers Watson said: 'The growing focus on disposals fits with a general strategy amongst major insurers in Europe in recent years of selling non-core units and of consolidating where they have a market-leading position. In addition, we expect more acquisitions of smaller insurers to result from the increased regulatory burden, mainly from Solvency II.'
Paul Francis-Grey, Deputy Editor EMEA, head of Financial Services Coverage at Mergermarket added: 'The excess capital that has been accumulated by insurance companies in recent years after a lull in activity is expected to be channelled into M&A to varying degrees within what could become a buoyant year for deals next year.'
The survey also found that the number of transactions completed in the EMEA insurance sector in the first half of 2014 was broadly in line with the same period in 2013. Deal value more than halved from 8.1 billion to 3.9 billion.
Most respondents put the absence of 'big ticket' transactions down to continuing economic volatility and, perhaps surprisingly given recent clarifications on Solvency II in particular, regulatory uncertainty, Towers Watson said.
Survey respondents also indicated that they expected transaction activity to keep growing, with 84% predicting capital inflows into the EMEA insurance sector over the next three years and strong interest from financial buyers.