, Singapore

Driving insurance transformation with strategy-aligned M&A

By Simon Phipps

Disruption is shaking the fundamentals of the insurance industry. This is true structural change, not just a cycle. New technologies, new competitors, new markets, new
regulations, and changing consumer behaviours are all creating tremendous opportunities, and posing significant risk to the legacy insurance business model. To succeed in this dynamic environment, organisations are reevaluating their portfolio of business and rationalising their global footprint to strategically determine “where
to play” and “how to win” in the future. One of the immediate consequences of this trend is the expected rise in deal activity in the global insurance industry.

Industry participants are increasingly getting more strategic about their inorganic growth initiatives. Traditional approaches to mergers and acquisitions (M&A) which have been largely reactive to immediate deal opportunities, are no longer sufficient. Insurance executives and their shareholders expect their investments to drive transformation within their organisation over the long-term, rather than deals that could be financially accretive in the short-term but are not sustainable.

To find out how this shift towards strategy-aligned M&A is influencing deal activity in the insurance industry, KPMG commissioned Mergermarket to interview 200 insurance M&A decision-makers across all segments and regions. We asked about their M&A plans for 2017 and beyond, about their alignment with corporate strategy, and about their current capabilities and initiatives to successfully execute deals in this environment.

What we heard suggests that organisations are recognising the need to reevaluate their business and operating models and, as a result, redefine their M&A ambitions and appetite. To get this right, however, insurers will first need to take pause, look at their overall strategic vision and objectives. They will need a deeper understanding of how they want to serve their customers and what propositions they want to offer. Only then should they consider what role their deal-making activities will play, balancing what they will need to buy or sell, against options to build, rent, or collaborate.

In The New Deal, we explore the trends shaping today’s M&A insurance landscape, and the need for greater alignment between corporate development, M&A activities, and corporate strategy.

As insurers formulate their M&A strategies for the year ahead, we believe the following trends will shape deal activity:

Cross-border activity will increase as insurers worldwide seek to diversify their geographic risks and earnings profile. With stagnation in global economic growth and changing geopolitical risks across the mature and emerging markets, insurers will look beyond their domestic borders to buy or sell assets abroad.

Portfolio rationalisation and strategic repositioning of businesses by larger insurers is expected to drive global M&A activity. Divestiture of non-core business segments in strategically non-core geographies is expected to be a key driver for increased deal activity.

Greater alignment of corporate strategy and M&A objectives will provide an edge to buyers as competition for deals rises. Creating a robust, strategy-aligned M&A plan of action would provide rationale for pursuing strategic-fit targets with higher deal premiums. This will result in better deal outcomes over the long-term, versus a reactive approach to pursuing any or all deal opportunities that present themselves.

The hunt for innovation will increasingly shape insurers’ rationale for doing deals. Companies with a strong digital model and startups with advanced technology will attract a multitude of willing suitors as legacy companies seek to transform their business models through acquisitions.

Asia in the acquisition cross-hairs
On a regional basis, our data suggests that insurers are much more focused on finding potential acquisitions in Asia Pacific. The emerging markets of Indonesia, India, China, and other countries remain largely untapped in terms of premium density — low levels of insurance premium per capita combined with large domestic populations present significant opportunity 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. Given current expectations for regional urbanisation, poverty reduction, and innovation, many expect the region to become a hotbed for M&A activity over the next few years.

Players from different Asian markets will respond to the new market dynamics in different ways. The more mature Asian economies, including China and Japan, will likely continue to bolster growth through outbound investments in North American and European markets. Japanese insurers, who are challenged with domestic growth, will continue to seek cross-border acquisition opportunities in order to diversify their earnings and risks. Chinese insurers continue to look to the US and other mature markets to gain access to know-how and capabilities in support of domestic expansion. It is becoming increasingly clear that, rather than simply jumping at opportunities, insurers are beginning to think far more strategically about the rationale behind the deals they make. These are interesting times, let’s see what the rest of the year brings.

Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

Get Insurance Asia in your inbox

Aussie PM frets about sustainability of disability insurance scheme

The growth in payment per participant was due to inconsistent information, he said.

China Taiping Insurance maintains stability amidst pandemic: report

But ROE and ROA were lower in 2020 compared to 2019.

Singapore health ministry to consider fully portable Integrated Shield Plans

But doing so can result in higher premiums.

Pivoting to Digital: How the insurance sector is moving with tech

Making bolder moves on digital will be needed to attract a bigger part of the market.

Singapore life insurers post 29% jump in Q1 2021 weighted new premiums

Single-premium products grew 85% QoQ in weighted premiums.

Luxury import cars drive South Korean non-life premiums in 2020

Top general insurers had  $16.82b in premiums through credit cards in 2020.

Indian insurers at the cusp of transformation: retired IRDAI chairman

India's IT capabilities will accentuate the further growth of the sector.

Indian general insurers likely to hit $36.4b in 2025

The sector has a CAGR of 8.7% over FY2019-2024.

HSBC Life, dacadoo partner to promote better health amongst users

The insurer will integrate dacadoo into its health platforms.

Philippine insurers' 2020 net income slips 8.6% to $859m

Premium income only crept up 1.18% YoY.