Insurance firms eye M&A and partnerships for growth: KPMG

Insurance executives are pursuing acquisitions and partnerships to transform and grow their businesses, says a report from KPMG International.

“Accelerated evolution—M&A, transformation and innovation in the insurance industry,” a survey of 200 global executives, found that 80% intend to look for one to three acquisition targets or partnership opportunities over the next three years.

Most insurance companies want to make acquisitions that could change their organizations for the future, said KPMG in a release. More than 60% of those surveyed said transforming their businesses or operating models would be the main reasons behind seeking acquisitions, compared to 21% who said enhancing their current business models would be the key reason.

Read: Canadian CEOs bullish on growth prospects in 2018

“They know they can’t rely just on organic growth to meet their objectives, so alliances and acquisitions become essential as insurers look to engage with customers in new and different ways, and gain access to innovative operating capabilities and technology infrastructure to reshape their business and drive future growth,” said Laura Hay, head of Global Insurance for KPMG International, in a release.

Cross-border deals

The majority of insurance executives surveyed said they are looking for inorganic opportunities to grow outside their countries of domicile. The survey found 68% of those polled expect to carry out cross-border deals, while 32% expect to conduct domestic deals. With regards to partnerships and alliances in the next three years, 39% expect them to be cross-border while 6% expect domestic partnerships.

The surveyed executives expect North America to have the most insurance M&A activity in the next three years. Asia-Pacific is expected to provide the most opportunities for partnership, while Europe is expected to have more divesture activity.

Identifying the right deals

Insurance firms don’t expect it will be easy to find the right deal to transform their businesses:

• 10% say they’re “extremely likely” to find a deal that is a strategic fit for their business models and
• 7% say they’re “extremely likely” to find a deal that is a strategic fit for their operating models.

Executives surveyed also said their organizations are lagging in their ability for deal sourcing, evaluation and execution. Specifically:

• 72% say “their deal sourcing objectives aren’t highly aligned with their corporate strategy” and
• 72% rate “their firm’s capabilities for evaluating a target’s strategic fit as moderate to low.”

The survey also found a trend of insurers setting up corporate venture capital (CVC) teams to acquire and accelerate innovation. Eighteen percent of those surveyed have already established CVC teams or plan to establish one.

Read the full report here.

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