The number of M&A deals that achieve their strategic, financial or operational goals remains modest across all industries. According to PwC’s 2011 M&A Integration Survey Report, 65 to 85 percent of mergers fail to create the value that was expected of them when the deals were announced. Restated, only 15 to 35 percent of senior managers from large-capital and middle-market U.S. companies surveyed reported a “very favorable” deal result. Executive Summary P/C carriers making acquisitions often struggle to assess is the underwriting function—their core competence. The authors—from PwC’s insurance practice—provide a seven-stop due diligence roadmap designed to avoid underwriting profit leakage on potential deals.
In the insurance sector, companies are finding it more difficult to grow their way out of failed deals given the current economic climate, in which the following are notably affecting insurance company performance:Excess capacity. Historically low interest rates, which are depressing investment income. Regulatory responses to the recent financial crisis, which have increased operating expenses.
To drive growth and increase profitability, many insurers are looking to expand product breadth, broaden reach via multiple channels, access new customer segments, and obtain scale while trying to create a counter-cyclical asset base. As a result of depressed valuations relative to tangible book value, select deal activity can be an enticing alternative to organic growth strategies—as long as the deals are well-considered, well executed and effectively integrated.