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Insurance M&A deal outlook remains healthy

Global Capital Confidence Barometer | Insurance | 17th edition

This edition of the Capital Confidence Barometer reveals sustained deal optimism among global insurance executives as the sector looks to be on the front foot in the face of disruption.

Global insurance M&A deal outlook remains healthy with 58% of insurance executives surveyed expecting to pursue acquisitions actively in the next 12 months — which is well above the 41% average since April 2013.

Strong M&A fundamentals

The recent rebound of global growth has been driven by improving prospects in the US and China (mainland), a gradual rise in employment levels and a recovery in the commodity markets over last year.

This improved economic growth scenario and a more engaged labor market will support insurance sector growth. Almost all (93%) insurance respondents see the global M&A market as either stable or improving.

Insurers’ focus on profitability through inorganic top-line growth and expense rationalization, coupled
with technology-driven investments will continue to drive M&A in the sector. Read EY‘s Global insurance M&A themes 2017 for more insights on dealmaking in the insurance sector.

Innovative assets in demand

Insurance executives point to growing market share (28% of respondents) and acquiring innovation (25%) as the top two main strategic drivers for pursuing acquisition. Insurers acknowledge the potential of new technologies in transforming the traditional value chain and are actively evaluating InsurTech investment and other opportunities to build capabilities. They are engaging with established technology players and emerging start-ups for digital transformation. In doing so, they must decide on their “buy, build and license” strategy to leverage new technologies.

2018 outlook

Looking ahead, while respondents are wary of policy uncertainty in key markets, we continue to see a clear outlook for insurance sector transformation, and therefore transactions. In addition to data-related investments, we expect further focus and investment in advanced analytics and pricing tools, robotics and blockchain. A record level of ‘dry powder’ could also fuel increased activity in the broader insurance sector by private equity acquirers. Meanwhile, shareholder activism will continue to be a factor for boardrooms.