Strong M&A in 2017 driven by UK asset sales and demand in APAC

Insurance assets for sale in the UK due to Solvency II and demand for acquisitions in Asia Pacific (APAC) are set to drive M&A activity in 2017, according to accounting and advisory firm KPMG.

The firm predicts that 2017 will be a strong year for deal making in the insurance industry with nearly 84 percent of insurers globally planning to make between one and three acquisitions this year, a report by KPMG shows.

In addition, 94 percent of insurers plan at least one divestiture in 2017 and the UK is expected to have the most assets up for sale as Solvency II forces companies to grow or go.

"Those insurers that cannot raise the required capital under the regulation may choose to get rid of businesses if they believe that resulting capital charges could otherwise negatively impact returns," said one respondent and head of investment for a mid-sized life insurer.

According to the report, Asia Pacific is due to be the region most in demand by buyers with 47 percent of respondents looking at APAC for acquisitions, more than twice the percentage for North America. Meanwhile, western Europe is seen as presenting the most divestiture opportunity led by the UK, Italy and Spain.

The report, 'The new deal: Driving insurance transformation with strategy-aligned M&A', states that 33 percent of insurers feel transforming their business model will be the primary driver of acquisitions in 2017.

Partnerships are also viewed as critical for operational transformation, with 87 percent of insurers indicating they will partner for new operating capabilities, while 76 percent say they will partner to access new technology infrastructure.

"Despite the strategic need for business transformation, many insurers continue to take an opportunistic approach to M&A. Just 47 percent of those insurers with dedicated M&A teams say their deal identification objectives are aligned to their corporate strategy. Thirty-seven percent admit their approach to deal making is still largely reactive," it said.

Matthew Smith, global strategy group, insurance sector lead at KPMG UK, said: "In this environment, the key to M&A success is to align financial, business and operating models so that you can achieve clarity about the markets and geographies you wish to play in and how you will win.

"You must also be prepared to analyse your capabilities in the areas of due diligence and targeting in order to understand how to extract maximum value over the medium term and how the target’s capabilities complement your own."

Ram Menon, KPMG global head of insurance deal advisory, said: "Insurers are clearly hungry for good M&A opportunities. They are focused on transforming their business and operating models, and even with geopolitical uncertainties, they are aggressively looking at deals that can help meet their objectives."

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