Insurer M&A activity set to rise: TowersWatson
Organizations should look beyond the numbers, say analysts.
November 22, 2010
Following a recession-era lull, more insurers are eyeing new markets–especially larger companies with strong valuations. Although the P&C sector has traditionally been more active on the merger front that its life counterparts–approximately 55% of insurance merger activity has been on the P&C side since 2000–the life sector has a bit more advantage this time around.
“From a P&C perspective, before we can think of M&A, we have to look at the current environment,” Bruce Fell, director of Towers Watson’s property & casualty practice in the Americas, said in a recent TowersWatson bulletin.
He points to “fairly weak” insurance pricing, and some valuations that still haven’t reached pre-crisis levels. “These factors have contributed to make it challenging for P&C companies to pursue an acquisition.”
Growth vs. divestiture
On the life side, insurers are weighing the growth vs. divestiture question, adds Jack Gibson, managing director of Towers Watson’s life insurance practice in the Americas
“Selective sales of blocks of business may be appealing to some insurers as a way to free up capital and decrease future earnings volatility, while strategic acquisitions may open up opportunities to grow profits and better diversify earnings,” he notes in the bulletin. “For many companies, organic growth alone won’t generate enough top-line growth, in particular since most US life insurance and annuity products have experienced flat or declining sales overall for the industry.”
The culture factor
Even when the numbers do add up, companies on the acquisition trail should recognize–and address–key cultural and operational elements of the organizations they bring into the fold.
The things that are attractive in a potential acquisition–certain product lines, or a geographical advantage–are also tied to its people, according to Mary Cianni, Towers Watson’s global leader of mergers and acquisitions. Integrating larger business processes in a merger also means making sure that the talent remains post-merger, she points out in the bulletin.
“Even in the insurance sector, where employees see an M&A more positively than people in other sectors, we still see issues around retention and a belief that career advancement will be stymied,” she says.
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