European insurers signal new wave of consolidation

More insurance companies across the EMEA (Europe, Middle East and Africa) region see themselves as sellers of business units rather than buyers over the next three years, according to a survey1 of senior insurance executives conducted by multinational professional services company, Towers Watson, in conjunction with global intelligence provider, Mergermarket.

More than 60% of respondents said they expected to divest operations before 2017, up from just 20% who said the equivalent just a year ago. Meanwhile, the percentage of organisations saying they expect to make an acquisition in the same three year timeframe has fallen from over two thirds (69%) to well under half (42%).

Fergal O’Shea, EMEA Life Insurance M&A Leader for Towers Watson, commented: “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. In addition, we expect more acquisitions of smaller insurers to result from the increased regulatory burden, mainly from Solvency II.”

Though the number of transactions completed in the EMEA insurance sector in the first half of 2014 was broadly in line with the same period in 2013, deal value more than halved from €8.1 billion to €3.9 billion. Most respondents put the absence of ‘big ticket’ transactions down to continuing economic volatility and, perhaps surprisingly given recent clarifications on Solvency II in particular, regulatory uncertainty.

Nonetheless, survey respondents overwhelmingly indicated that they expect transaction activity to keep rising, with 84% predicting capital inflows into the EMEA insurance sector over the next three years and strong interest from financial buyers. Of this group, over half said they saw private equity (PE) as the most important source of capital for insurance M&A in the next three years.

Fergal O’Shea noted: “Private equity investment in the EMEA insurance sector is already at its highest level for nine years. 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 EMEA, Head of Financial Services Coverage at Mergermarket concludes: “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.”