European insurance M&A primed for 'stronger' comeback — Moody's

Mergers and acquisitions (M&A) activity in the European insurance market looks primed for a rebound as companies begin to emerge from the pandemic with a "stronger appetite", suggests a new report by credit rating agency  Moody's.

Insurance chief financial officers (CFOs) are expecting higher M&A activity over the next two years.

Moreover, most CFOs are expecting a rebound in earnings in 2021, supported by increases in P&C commercial prices, higher demand and a short-term economic recovery, while they foresee limited additional coronavirus losses.

According to Moody's annual survey of 21 insurance company CFOs, 62 percent of respondents are expecting to participate in M&A in the next two years, which is up from 40 percent in early 2020, prior to the coronavirus outbreak.

"European insurers see mergers and acquisitions as a means of adapting their business models to sluggish long-term economic growth and persistently low interest rates," explained Benjamin Serra, a senior vice president at Moody's.

"More than half of the companies surveyed that plan to be involved in M&A see themselves as potential sellers, reflecting the recent trend of insurers divesting unprofitable units," he added.

The survey also showed that insurers still expect to change their investment allocation, although the proportion of insurers planning to increase their investments in illiquid assets has dropped compared with a year ago. The preferred illiquid asset classes remain infrastructure, followed by mortgage loans, and real estate.

Furthermore, insurers are also preparing for IFRS17, which they anticipate will have a larger impact than other upcoming regulatory changes. Around 50 percent of life companies expect a decrease in shareholders' equity after the application of the new accounting regime, while the volatility in profits is also likely to increase.

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