Europes insurance sector could witness a sharp rise in merger and acquisitions (M&A) after firms reported strong levels of surplus capital one year on from the implementation of Solvency II.
That is according to the findings of an annual survey of chief financial officers (CFOs) by Moody's Investors Service, which shows that more than 40% are looking to deploy surplus capital, compared with 10% in 2016.
Share buybacks are another option popular with CFOs, while 30% of respondents anticipate increased exposure to real estate, private placements, infrastructure, and mortgages and loans.
"With large European insurers reporting solid levels of capital, CFOs are turning their attention toward the deployment of excess capital," Moody's associate managing director, Antonello Aquino, said. "M&A and share buybacks are the main options available to them."
It was found that around 90% of insurers had made investments in technology to improve access to services, improve back office functionality, and make greater use of big data, with artificial intelligence and the internet of things expected to be their next focus.
This comes after research by Willis Towers Watson (WLTW) in February showed that 49% of global insurers expect to acquire new technologies through M&A activity over the next three years.
"Insurers recognise the importance of building a sustainable digital infrastructure to improve customer engagement and as an essential distribution channel," WLTW Asia Pacific digital solutions head, Nicholas Chen, said.
"The tools emerging are often so far removed from insurers' previous experience that external innovation models are likely to be the only way of expanding digital capabilities. This is expected to lead to a wave of new M&A activity in the years to come."
One third of respondents to the Moody's survey named prolonged low interest rates as their top challenge in 2017, with insurers still being forced to reinvest maturing assets at lower rates of return than historic levels.
Despite this, CFOs do not expect to issue large volume debt in the next 24 months, with 44% of respondents saying they only anticipate to issue sufficient debt to cover financing needs.