Insurance industry M&A activity should swell through the rest of 2017 in all areas, with multiple factors driving the trend Conning said in a new report.

“The property/casualty sector should continue to be fueled by strong fundamentals: an overabundance of capital, fewer organic opportunities in a soft market, and pressure on expense ratios and earnings,” Conning said.

The firm went on to note that optimism on U.S. growth should fuel continued interest in North American acquisition targets, with foreign capital – particularly from Japanese companies – “a key driver for larger transactions.”

As well, Conning said merger activity will focus particularly on specialty assets. While personal lines sectors saw limited M&A activity in 2016, that could change because auto insurance markets face more pressure now from higher claim frequency and the greater chance of disruption from “nontraditional players.” Conning added that acquisition pressure could also come from a phenomenon in Florida, where assignment of benefits fraud is causing more concern for market participants.

Mutual insurers see more expense ratio pressure than they used to, and they will also pursue strategies to either diversify, exit unprofitable markets or affiliate with larger insurers, Conning noted.

2016 M&A Dropped Compared to Previous Year

Conning’s predictions for 2017 come as it notes that global M&A transactions for 2016 dropped across all sectors. Conning tallied 165 transitions for the year worth $33 billion in aggregate announced value, of which 13 were worth $1 billion or more. Of that number, five were in the P/C sector.

In 2015, there were 24 transactions worth $1 billion or more announced, Conning noted.

Merger and acquisition activity dipped in 2016 due to regulatory uncertainty, and “the focus on the issues accompanying the mergers of four of the largest companies,” Conning said.

Conning’s assessment of declining M&A activity in 2016 dovetails with a related report issued by Clyde & Co. earlier in 2016 that found the dip was a blip because factors driving the trend have continued unabated.

Conning & Co.’s study is called “Global Insurer Mergers & Acquisitions in 2016: Activity Slows, but Pressures Remain.”

Source: Conning & Co.