Signs point to 2017 being another year of “robust” mergers and acquisitions, thanks in part to a number of ongoing industry trends and a current government climate that show no sign of letting up, Conning said in a new report.
“The combination of a higher level of confidence among businesses and expectations for lower tax rates could serve to accelerate the pace of M&A in the distribution and services sectors,” Conning’s report states. “We would not be surprised if 2017 produced a record number of transactions, with tech-driven service providers garnering more attention.”
From Conning’s perspective, one of the biggest M&A drivers is among the longest factors that has lingered in the market. Insurers still dealing with excess capital and “flat-to-down rates” see acquisitions as their only option to grow in order to counter low organic growth rates, according to the report, Conning said.
M&A “currently represents the most viable way for insurance distributors to go,” Conning said in its report.
What’s more, there are plenty of willing buyers out there.
“The buyers are plentiful and take many forms—agents, brokers, MGAs/MGUs (managing general agents/managing general underwriters), insurers, private equity firms,” Conning noted.
As the market evolves and customer demands increasingly focus on efficiency and digital options, Conning said that many insurers can hardly avoid acquisitions at this point.
“We expect the insurance industry to continue investing significant dollars in acquiring relevant knowledge,” Conning said. “The industry cannot afford to ignore new risks and new technologies. Insurers are obliged to invest in resources to enhance growth and efficiency.”
Other M&A drivers Conning sees for 2017 include:
- The Trump effect. Consumer confidence is higher, and lower tax rates are widely expected. This, combined with possibly higher interest rates, could speed up M&A on the distribution side, Conning said.
- A need to improve scale and efficiency. Conning notes that new InsurTech companies have focused on improving how insurance is distributed. These companies are valuable, and not all will survive, so Conning predicted acquisitions in this subsector will likely rise.
Conning also hedges its bet, noting some factors could end up slowing the rapid pace of M&A. If Trump’s policies go away, the economy weakens, foreign companies turn away from the market and the U.S. dollar stays strong, M&As could end up being a disappointment rather than a trend, Conning said.
Conning’s full study is called “Global Insurance Distribution & Services Sector Mergers & Acquisitions: The Beat Goes on.”