Insurtech a catalyst for M&A

The insurtech phenomenon and the entire digital revolution are driving mergers and acquisitions (M&A) in the global re/insurance markets—but companies must ensure any deals they consider make sense for their business and improve their overall strategy.

That was the cornerstone of the advice from a panel of experts speaking at the Guy Carpenter Baden-Baden 2018 Reinsurance Symposium, titled: Back to the past: a return to global composites.

The speakers were James Nash, chief executive officer, international, Guy Carpenter; Pina Albo, chief executive officer of Hamilton Insurance Group; Steve Arora, chief executive officer of Axis Re; and Charles Goldie, chief executive officer of property & casualty at PartnerRe.

Albo suggested that insurtech is coming of age and that companies that have an insurtech angle or capability become an interesting asset to own or acquire.

“We are going to benefit a lot from technology and analytics to make decisions that are faster and better informed,” she said. “The focus on new technology is going to play a role in M&A going forward.”

Technology is also shaping new risks, according to Arora, warning that insurers must answer the question of whether they are an enabler or a blocker to that technology. He noted that it is important not to lose the human element of the business.

“In time technology is going to be a huge part of all our stories,” said Arora. He asserted that maintaining a personal touch will become a big differentiator in the value of a company as the world becomes more tech-focused.

Nash agreed that the value of human beings in terms of making the right decisions, especially in specialty insurance, should not be understated.

“When it comes to highly specialised technical classes of the business we believe in the value of the human being,” he said.

Goldie suggested that the world of artificial intelligence and big data does a valuable job of better defining certain—especially non-standard—risks.

He added that he doesn’t see insurtech as a threat to reinsurance, but rather an opportunity. At the distribution end of the business, he suggested, it can make processes more efficient and create new ways of looking at risks and new pools of risk. It can also cause risk to accumulate in places it hasn’t in the past, he said.

The M&A movie

Albo pointed out that several of the factors influencing the strategic thinking behind M&A had changed.

“We’re watching the M&A movie again, but this time around we’re seeing different plot twists. There are three developments currently influencing M&A activity,” she said.

“First is the impact of alternative capital, second is the insurtech phenomenon, and third is the entire digital revolution.”

Addressing the question of whether bigger is necessarily better, she added: “You don’t have to be big to be beautifully relevant or financially successful, but you do have to be focused.”

Arora called on the industry to embrace change to tackle current market challenges, highlighting the need for adaptation and to focus on the client.

“We are undergoing a period of unprecedented change and we must all adapt. We know that one of the biggest challenges we face is the price equilibrium dynamic and we must tackle that,” he said.

“But there is a reason for optimism as trends over the long term are favourable for the industry.”

In the final presentation, Goldie said that M&A activity would be driven by the demands of the buyer.

“M&A in the reinsurance space will eventually go where the buyers of reinsurance want it to go,” he explained.

“Increasingly, we see the buyers of reinsurance looking to concentrate their relationships with a smaller number of core reinsurers that they can consider as both capital and strategic partners.

“Ultimately, this points to further consolidation in the number of truly global reinsurers, as well as a need for dedicated, independent reinsurers that have the ability to be strategic partners on a meaningful scale.”