KPMG: More Insurance Execs Are Mulling M&A Activity

August 6, 2014 by Mark Hollmer

An increasing number of insurers are mulling M&A activity or strategic acquisitions of specific lines of business in the months ahead, a new KPMG report concluded. Concerns about new regulations and legislation, competition from lower-cost rivals, and continued after-effects of the sluggish economic recovery appear to be some of the many drivers.

“We agree that regulatory change pressures, access to new markets, fierce competition and technology advances are all areas that will drive [more] M&A activity in the reinsurance and property/casualty markets,” Laura Hay, national leader of KPMG’s insurance practice, told Carrier Management.

KPMG’s 2014 Insurance Business Outlook Survey, conducted in the 2014 second quarter, compiles the responses of 95 senior insurance industry executives in the U.S. About 39 percent of responses came from the property/casualty industry and another 24 percent are from reinsurers. Life insurance responses filled out 23 percent.

Here are some highlights of what Hay and KPMG found overall:

The M&A numbers were even higher for the reinsurance market. According to the report, this sector was much more likely to pursue M&A as buyers (70 percent) than other segments (38 percent to 55 percent).

But while other insurers surveyed said that regulatory changes, emerging markets and the need for new products were driving more M&A interest, reinsurers were much more likely to seek an M&A deal due to data analytics concerns, KPMG said.

“Our view is that reinsurance companies will be depending on sophisticated data analytics for their underwriting abilities, and this will be a key driver for M&A on the reinsurance side.”

As far as M&A upticks on a broader scale, Hay said that the focus isn’t solely on company mergers but more these days on specific business lines.

“The last two years the conversation around strategic acquisitions has been quite light,” Hay said. “This year it has started to pick up, [though] the key is ‘strategic acquisition.’ Instead of wholesale company acquisitions, it is building brands and businesses, divesting noncore [assets], rather than grabbing everything and trying to figure out what to do about it.”

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Source and chart: KPMG (click to enlarge)