Insurers Seek Global Acquisitions; China, US Lead

The global insurance industry - China and the US in particular - is expected to see a rise in the number of merger and acquisitions in 2017, mainly driven by the need to transform business and operating models, finds a recent KPMG global survey.

The report, titled The new deal: Strategy-aligned M&A to drive insurance transformation, highlights that 84 percent of insurers surveyed are planning to make one to three acquisitions in 2017, and 94 percent are planning at least one divestiture; two-thirds of insurers said they expect to undertake a cross-border acquisition.

The report is based on a survey of 200 global insurance executives on their perspectives and outlook for M&A, corporate strategy and innovation over the coming 12 months. It finds that almost a quarter of them ranked the US as their top national destination for acquisitions, followed by China (12 percent).

On a regional basis, 47 percent of respondents indicated they will focus on Asia Pacific for acquisition opportunities, more than twice the percentage for North America.

Paul Melody, Head of Actuarial Services, Asia Pacific, KPMG China, says: “The emerging markets of Indonesia, India and China remain largely untapped in terms of their premium density — low levels of insurance premium per capita combined with large domestic populations, present significant opportunities for additional scale in the medium to long term.

“There are significant coverage gaps across the region, making these markets prime targets for insurers looking to diversify and grow.”

Reasons for acquisition

In terms of reasons for acquisition, transforming and enhancing their existing business models were identified by 33 percent of global insurers as key drivers, respectively.

The report also suggests that insurers are taking a number of paths to secure transformative deals. Corporate venture capital (VC), in particular, is gaining traction with 62 percent of insurers saying they are either already active or currently setting up a corporate venture capability as a way to build technical capabilities.

More than a quarter of the existing VC funds claim more than US$1 billion in allocated funding.

Additionally, partnerships are viewed as critical for operational transformation, according to the survey. Eighty-seven percent and 76 percent of insurers indicated that they will seek partnerships for new operating capabilities and to access new technology infrastructure, respectively.

New partnership opportunities

The research indicates many insurers are looking for new partnership opportunities.

Joan Wong, Partner and Asia Pacific Lead of Insurance Deal Advisory, KPMG China, says: “China already boasts a fairly mature partnership ecosystem between national banks and insurers. As a result, many of the partnerships now being forged in China will be focused on acquisitions in alternative and aligned segments in the fintech and e-commerce space.”

At the same time, Chinese insurers are beginning to look to the US and other mature markets to gain access to know-how and capabilities in order to expand their domestic insurance infrastructure.

Melody concludes: “Across both life and non-life sectors in Asia, the premium-flow projections are set to be positive over the next few years.

“The industry as a whole is set for rapid transformation, and property and casualty could be at the forefront of that change. Things like motor, home, travel and health insurance can increasingly become intertwined with risk management and risk prevention techniques daily, and also be more commoditized.”