At the 2016 RIMS Annual Conference, Grace Vandecruze from Grace Global Capital LLC presented a session discussing M&A trends in the insurance industry.
There are several factors currently impacting M&A activity in the insurance marketplace:
- Prolonged low interest rate environment
- Competitive landscape
- Low equity valuations of many companies
- Strong cash positions, excess capital
- Foreign buyers
- Private equity
- Regulatory uncertainty
- Geopolitical risk
- Shareholder activism
In the P&C industry, when you compare 2005 to 2015 you still see basically the same market share controlled by larger companies with around 54% of the marketplace outside those larger companies. In the life marketplace we have seen a 10% increase in the percentage of the market outside the larger companies. The smaller company share in the health marketplace has also been relatively stable comparing 2005 to 2015.
Looking globally, 10 years ago there were no Asian companies in the top ten by market cap. Today there are four Asian companies in the top 10. The number of US companies on the list has dropped. Asian companies have been very aggressive in the M&A area using their excess capital to diversify their global footprint. Regulators in Japan and other Asian companies have encouraged this diversification as a way for companies in those countries to get better returns on their investments.
Last year the ACE / Chubb merger was the big news in the insurance industry, leading to a huge spike in M&A in 2015 compared to prior years. There was also a significant amount of M&A activity in the managed care industry 2015.
The biggest drivers on M&A activity are in increasing the scale of the company and the geographic footprint. Finding synergies is also an important consideration.
Looking forward, the expectation is that M&A activity will continue to be a key strategic initiative for companies. Three of the four non-bank SIFI companies are looking to sell assets to get out from under government supervision.