European insurers planning consolidation

European insurers planning consolidation

According to a new survey from professional services company Towers Watson and global intelligence provider Mergermarket, European insurers are signalling a new wave of consolidation going forward

The survey, in which Mergermarket’s researchers canvassed opinion from 264 senior insurance executives from the life, property, casualty and composite sectors, as well as reinsurers, suggests that increasing numbers of insurance companies in the Europe, Middle East and Africa (EMEA) region are expecting to approach the next three years from a selling perspective, selling business units rather than buying them. Over 60 per cent of respondents to the survey said that they were expecting to divest operations before 2017, a not-inconsiderable rise from the 20 per cent who said the same thing one year ago, while the percentage of organisations expecting to make acquisitions in the same three-year timeframe has dropped from 69 per cent to 42 per cent.

“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,” commented Fergal O’Shea, Towers Watson’s EMEA life insurance mergers and acquisitions (M&A) leader. “In addition, we expect more acquisitions of smaller insurers to result from the increased regulatory burden, mainly from Solvency II.”

While the number of insurance transactions completed in the EMEA region in the first half of this year was generally in line with figures from the same period last year, deal value was observed to have dropped from €8.1 billion to €3.9 billion, and the majority of respondents to the survey suggested that an absence of so-called ‘big ticket’ transactions could largely be attributed to persistent economic volatility and regulatory uncertainty (Towers Watson expressed surprise at this latter point, considering the recent clarifications that have been given with regard to Solvency II).

However, survey respondents also overwhelmingly suggested that it was their expectation that transaction activity would continue to rise, with 84 per cent predicting capital inflows into the EMEA’s insurance sector between now and 2017, with ‘strong interest’ from financial buyers, and over half of this group agreed that private equity would be the most important capital source for insurance M&A over this forthcoming period. “Private equity investment in the EMEA insurance sector is already at its highest level for nine years,” commented Fergal O’Shea. “A combination of insurers seeking consolidation, low interest rates, the cash generative nature of insurance businesses and the revival of initial public offering (IPO) opportunities across many parts of Europe should heighten the appeal of insurance assets to private equity investors.” Paul Francis-Grey, deputy editor of EMEA and 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.”