Insurance mergers and acquisitions (M&A) are expected to shift “into higher gear” in 2017, according to KPMG International.
Some 84% of insurance companies globally are planning to make between one and three acquisitions in 2017, the accounting and advisory firm said.
At least one divestiture is expected by 94% of insurers, KPMG said.
Insurers in the UK are expected to have the most assets up for sale in 2017, KPMG suggested, as Solvency II regulation “forces firms to grow or go”.
“Insurers are clearly hungry for good M&A opportunities,” said Ram Menon, KPMG global head of insurance deal advisory.
One respondent and head of investment for a mid-sized life insurer commented: “Those insurers that cannot raise the required capital under the regulation may choose to get rid of businesses if they believe that resulting capital charges could otherwise negatively impact returns.”
Asia-Pacific is due to be the region most in demand by buyers, reported KPMG’s study “The new deal: Driving insurance transformation with strategy-aligned M&A”.
Forty seven percent of respondents are looking at Asia Pacific for acquisitions, KPMG said, more than twice the percentage for North America.
Western Europe is seen as presenting the most divestiture opportunity – led by the UK, Italy and Spain.
According to the report, 33% of insurers said transforming their business model is the primary driver of acquisitions in 2017.
“They are focused on transforming their business and operating models, and even with geopolitical uncertainties, they are aggressively looking at deals that can help meet their objectives,” said KPMG’s Menon.
Partnerships are also viewed as critical for operational transformation, with 87% of insurers indicating they would partner for new operating capabilities, while 76% planned partnerships to access new technology infrastructure.
Despite the strategic need for business transformation, many insurers continue to take an opportunistic approach to M&A, KPMG said.
Just 47% of those insurers with dedicated M&A teams said their deal identification objectives were aligned to broader corporate strategy, and 37% admitted their approach to deals was reactive.
“In this environment, the key to M&A success is to align financial, business and operating models so that you can achieve clarity about the markets and geographies you wish to play in and how you will win,” said Matthew Smith, insurance sector leader for KPMG’s global strategy group in the UK.
“You must also be prepared to analyze your capabilities in the areas of due diligence and targeting in order to understand how to extract maximum value over the