As reported in KPMG’s 2015 report on trends driving the insurance M&A landscape, strong balance sheets and continued confidence resulted in a steady flow of targeted mergers and acquisitions over the past year. Another active year for insurance industry M&A is expected. The report predicts four broad drivers of M&A activity in the global insurance landscape in 2015:
High growth markets
Insurance M&A may get a boost from Africa, where long-term population growth, forecasted GDP growth and the potential for financial services growth through mobile technology presents opportunities.
As well, reverse deal flow (involving acquirers from high growth markets investing in mature markets) is a trend that is expected to continue, particularly as it relates to the investments of large Asian insurers. High growth markets, such as Asia and Latin America, are also expected to attract insurance M&A attention.
Regulatory changes are cited as the most important factor driving insurance M&A. Potential regulatory changes in India will allow for increased foreign investment in local insurers which in turn may act as a driver of growth in the country’s insurance industry.
The insurance M&A landscape in China will also be affected by regulatory changes. With “relaxing foreign ownership restrictions and changes to local ownership requirements… China is poised to see an increased level of attention, particularly in the health insurance and pension markets.”
The Solvency II Directive, which is meant to codify and harmonize EU insurance regulations, is set to come into effect on January 1, 2016 and is expected to have an effect on insurance M&A as capital requirements become clearer.
Efficiency and focus
Efficiencies are expected to occur in the insurance industry through the sale or restructuring of non-core operations and through better client interaction with the increased use of technology.
Excess capital in the reinsurance market, linking alternative capital with underwriting capability and continuing strain in the Russian market are all reported by KPMG as potential drivers for industry consolidation.
A.M. Best recently echoed KPMG’s prediction, stating that “[w]ith current market conditions of double-digit price declines, increasing commissions and lower premiums, as well as the increased competition, the need for M&A [in the reinsurance market] is becoming clearer.”