Details

  • Type: Press release
  • Date: 8/6/2014

Insurance Executives Expect Significant Uptick In M&A Activity In 2014, KPMG Survey Finds 

Investments in strategic acquisitions, customer programs and information technology expected to rise; More execs focused on talent management; Regulatory pressures remain top threat to business models

More insurers are eyeing strategic acquisitions this year, according to the 2014 Insurance Industry Outlook Survey conducted by KPMG LLP, the U.S. audit, tax and advisory services firm. In addition, the vast majority are investing in customer programs, talent, and technology to grow their businesses and gain a competitive advantage.

 

In surveying 95 U.S.-based senior insurance executives, KPMG found that 54 percent of executives indicated that they expect to be involved in a merger or acquisition as a buyer over the next year, up significantly from 34 percent in KPMG’s 2013 survey.  Of the 54 percent, 19 percent said they are “very likely” to be involved in a merger or acquisition as a buyer, up from just 10 percent last year; and 35 percent said “somewhat likely,” up from 24 percent the year before.  The number of executives who said they had no plans for M&A activity dropped substantially from 41 percent in 2013 to 21 percent in 2014. 

 

“M&A activity is expected to ramp up in the next year as insurers leverage their strong capital positions to seek profitable growth, enter new markets and rationalize non-core operations,” said Laura Hay, National Leader of KPMG’s Insurance practice.  “P&C insurers are acquiring companies with enhanced technology platforms to gain a competitive edge and view M&A as a crucial means to increase their distribution capacity.  Meanwhile, life insurers are expanding their traditional product portfolio to include annuity and investment management capabilities to address the needs of baby boomer retirees.”

 

When asked to identify the primary drivers of M&A activity in the insurance industry in 2014, executives most frequently cited “access to new markets and geographic areas” (45 percent); “regulatory changes and pressures” (45 percent, up from 36 percent in 2013); “access to new technology and products” (37 percent, up from 29 percent in 2013); and “improved use of capital” (24 percent).  Fourteen percent of respondents also indicated that the “strategic divestiture of current assets” is one of the initiatives expected to consume management’s time, energy and resources the most, up from three percent last year.

 

“The global regulatory landscape continues to emerge as a key deal catalyst as insurers consider the continued implementation of risk based capital and capital management initiatives,” said Ram Menon, KPMG's Insurance Sector Lead Partner for Transactions & Restructuring. “Initiatives like the Asset Quality Review for the banking sector in Europe are expected to result in a more rigorous assessment of whether insurance businesses are considered core or should be sold.  In addition, high growth countries like China, India and some Latin American jurisdictions, which do not have enough capacity to meet the needs of retirees, are in discussions to relax regulatory barriers to encourage foreign direct investment.” 

 

A Growing Investment Agenda

More than half of respondents (52 percent) believe that “customer demand and changes in customer focus, buying patterns and preferences” will be the primary driver of transformation for their business, followed by “coping with changes in technology” (45 percent) and “domestic competition” (42 percent). 

 

When asked to identify the highest-priority investment area for their company over the next year, respondents most frequently cited “strategic acquisitions” (34 percent, up from 22 percent in 2013), followed by “customer programs” (25 percent, up from 23 percent in 2013), and “information technology” (24 percent).  Over the next two years, insurers are primarily looking to boost their technology investments for “customer growth and customer service” (27 percent), “data and predictive analytics” (26 percent) and “risk modeling and analysis” (24 percent). 

However, cost continues to be the primary challenge to implementing and supporting more sophisticated data and analytics, as indicated by 37 percent of respondents. 

 

“Following the financial crisis, insurers were not in a position to make significant investments in their businesses, but now they realize they need to improve operations to win in the marketplace—with a focus on customer-centric strategies,” said Hay.  “Those insurers who make investments in predictive analytics and modeling, and leverage data to gain a 360 degree view of the customer and effectively manage risk stand to rise above the competition.”

 

Turning attention to talent management

The number of respondents who indicated that “resources/strategic talent” would top their investment agenda rose dramatically from two percent in 2013, to 24 percent this year.  With respect to primary areas of focus for talent management, insurance executives most frequently cited “development and training” (52 percent, up from 31 percent in 2013); “retention” (46 percent); “acquisition and recruiting” (34 percent, up from 18 percent in 2013); “performance management” (34 percent); and “succession planning” (22 percent).  In fact, the number of executives who indicated that “human capital realignment and talent management” would be a key focus area for operational improvement jumped from seven percent in 2013 to 18 percent this year.

 

“As baby boomers begin to retire and fierce competition for Generation Y candidates heats up, it’s more critical than ever that insurers invest in talent now to close the talent gap and gain a competitive advantage,” added Hay. 

 

Regulatory Pressures Persist

The impact of new regulations and legislation remains the biggest threat to insurers’ business models, as indicated by 34 percent of respondents.  Respondents also believe “losing share to lower-cost producers” (31 percent), the “speed/magnitude of the economic recovery” (23 percent), “lack of job growth” (18 percent) and “cyber-threats” (17 percent) are primary threats

to their business models.  When asked to identify the potential regulatory changes that would have the most impact on their businesses, insurance executives cited “the need to manage multiple capital requirements” (35 percent); “changes to the insurance contract standards by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB)” (31 percent); “healthcare reform” (23 percent); and “group and cross-border supervision” (22 percent).

 

About KPMG’s 2014 Insurance Industry Outlook Survey

The KPMG survey was completed from February through April 2014 and reflects the responses of 95 senior insurance executives from the United States.  Based on revenue in the most recent fiscal year, 29 percent of respondents work for companies with annual revenues exceeding $10 billion; 11 percent with annual revenues between $5 billion to $10 billion; 13 percent between $1 billion to $4.9 billion; 11 percent between $500 million to $999.9 million; 24 percent between $250 million to $499.9 million; and 13 percent with revenues between $100 million to $249.9 million.  Thirty-one percent of respondents are Senior Vice Presidents, Vice Presidents or Directors, followed by CEOs, Presidents, Owners (27 percent); C-Class: CFOs, COOs, or CTOs (25 percent); and Executive Vice Presidents or Managing Directors (17 percent).  A copy of the full KPMG 2014 Insurance Industry Outlook Survey report can be found here.

 

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 155,000 professionals, including more than 8,600 partners, in 155 countries.

 

Contact:                                                           

Tracy Iacovelli

KPMG LLP

(201) 307-8655                                                                      

tiacovelli@kpmg.com