The resurgence of M&A in the insurance industry is now firmly established.
Financial services M&A 2005, a review of the outlook for acquisition carried out by PricewaterhouseCoopers, found that deal activity in insurance is continuing to increase and that many of the largest recent transactions in the FS sector as a whole have involved companies with significant insurance interests. Particular attention is coming from private equity investors. However, while large mega-deals are still on the cards, they are likely to prove the exception rather than the rule as regulatory and shareholder demands continue to put pressure on capital and shape the scope and nature of takeover activity.
Increasing margin pressures are likely to provide the strongest impetus for further M&A, especially domestic deals with strong synergy potential. Margins have been declining for some time and acquiring competitors would enable companies to improve scale, build volume and exploit opportunities for cost saving rationalisation.
Insurers will need to shape their strategies around the generally limited capital available for acquisition, which has declined in the wake of the weakened investment returns of recent years. Capital is now coming under further pressure from new regulatory demands. Indeed, divestment could be as strategically important as acquisition in this market environment.
Smart targeting, skilful execution and effective implementation will be critical in ensuring the success of any deals and winning the support of sceptical analysts and investors, who will rapidly penalise any perceived failure to deliver value from M&A. Merged companies’ ability to deliver value is likely to come under more intense scrutiny following the move to
International Financial Reporting Standards (IFRS).
How PricewaterhouseCoopers can help you
PricewaterhouseCoopers has a global network of specialists who can help vendors and acquirers to maximise the returns on deals and reduce the risks. Services include due diligence, merger benefit analysis, finance, transaction and post-integration support.
