6 minute read 19 Jun. 2020
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Insurance companies’ intent to divest remains strong amid crisis

By David Lambert

EY Global Insurance Strategy and Transactions Leader

Helping clients to assess the merits of investing into, or divesting of, companies in the insurance sector.

6 minute read 19 Jun. 2020

Many insurance companies are focusing on accelerating digital transformation, divesting to fund new technology investments.

Insurance leaders are thinking about the long-term implications of the pandemic on their industry and operations and how, in many ways, it will accelerate trends already underway. This is likely to be as true for mergers and acquisitions as it is for insurers’ divestment activity, which could be expected to rise sharply in the coming months.

Indeed, the crisis has highlighted the serious threats to resilience posed by insurers’ operational complexity and inflexible systems. In turn, this has underscored the need for insurers to embrace simpler, more agile and modernized systems, an imperative that should accelerate divestments of legacy businesses encumbering future growth and development.

How is the crisis influencing divestment strategy and activity?

In the short term, and despite the extreme difficulty of valuing assets when the economic outlook and the timing of any recovery is uncertain, divestment expectations have remained quite strong.

In fact, intent to divest remains at a high level: 78% of insurers said they planned to initiate a major divestment in the next two years. And on reopening the survey in April, three quarters said the same, with most (44%) aiming to initiate the execution process within the next 12 months. 

Timing to initiate divestment


of insurance respondents said they expect to divest within the next two years.

The need to divest, therefore, remains as high as it was pre-crisis but there are now other reasons, given the potential impact of the crisis, why insurers will be pursuing divestments. In the main, they plan to reduce debt through divestment (88%), reshape their portfolio to build operational resilience through the crisis and beyond (63%), and raise capital (50%) to strengthen their balance sheets.

In addition, most (63%) say they will use sale proceeds to invest in their core business, with 44% planning to use the capital to build liquidity. While distressed situations are likely to remain low — only 31% believe distressed assets sales will increase in the next 12 months — there is a risk of liquidity stress across the wider insurance value chain, particularly among insurance brokers due to lower levels of cash reserves compared with underwriters.

Importantly, accelerating digital transformation is likely to be a big focus of insurers’ investment in the core business, especially now as systems and platforms are being tested as never before. This is perhaps why 50% of insurers say they are now more likely to divest to fund new technology investments, a striking increase from 25% pre-crisis. 

Reasons to divest


of insurance respondents said the need to fund new technology investments will make them more likely to divest in the next 12 months.

What’s more, 44% — up from 28% — said they are now more likely to divest due to the geopolitical uncertainty and macroeconomic volatility. Such potentially strong supply, in turn, will present ample opportunities for buyers, from within the industry and outside. Some 50% now expect to see an increase in the number of buyers outside the seller’s sector, an increase from 34% in our pre-crisis survey.

Pre-crisis factors driving divestments maintain their importance and relevance:

  • Scale: Insurers are seeking to offload products or segments where they do not have leading market share; 60% of insurers say their last divestment was triggered because of this.

  • Capital efficiency: Some insurance products, most notably annuities, absorb significantly more capital than others. Annuities are also complicated to manage and have greater uncertainty attached to them. They are a prime target for sale in both Europe and North America, where there are a growing number of specialty annuity businesses out there that have been structured to buy and manage these books of business.

  • Streamline the operating model: Insurance leaders increasingly recognize the need to address how large and complex some of their organizations have become; some 68% said their last divestment was triggered by a need to streamline the operating model.

What must insurers do next?

While the pandemic and economic downturn has thrown off the original timing for divestments, insurers should be using the time now to prepare the business for sale, and in most situations increase the level of focus and attention on this area.

Certainly, 63% of insurers said one of the main impacts from the crisis on their divestment strategy was increasing their level of divestment preparation, which will be even more crucial for sellers in getting as close as they can to achieving their price expectations.

Indeed, about half of insurers, in our pre-crisis survey, said that the price gap between sellers and buyers was more than 20%. It’s alarming that 88% now expect the price gap to increase further as a result of the crisis.

If achieving expectations was not so challenging in the past, more than half (56 %) said they met or exceeded their target price in their most recent divestment — it will be for the foreseeable future amid such turbulent markets. Therefore, the internal resources and time needed now, amid turbulent markets, to prepare an asset for sale should not be underestimated (44% said they did do so in their last disposal).

What’s more, there is a need to focus attention now on value-enhancing strategies: 47% said they should have invested more time and resources into creating pre-sale value on their recent divestment.

Key here, ahead of putting a business up for sale, will be focusing on ensuring the quality of the management team (according to 50% of insurers). Interestingly, some 68% said they would also consider an earn-out as a mechanism to achieve desired deal value.

Key divestment challenges

When selling assets, insurers need to address some important sector-specific challenges. Chief among these are client and regulatory sensitivities around data.

As many insurance products are long-term in nature, divestments are essentially a sale of a group of specific policyholders: the selling firm must ensure that these policyholders are well protected in the future — both for their sake and for the reputation of the seller.

From a regulatory perspective, any insurance entity sold must continue to be regulated as an insurer. Consequently, in some markets, regulators have pushed back on private equity-type structures unless they give the same protections to policyholders as the incumbent provider. Being acutely aware of the regulatory implications of a transaction is important: more than half (56%) said a lack of understanding around regulatory requirements deferred closing.

Another important consideration is the need to be realistic about benefits from potential synergies. When evaluating bids, insurers must scrutinize assumptions about potential efficiencies (resulting from merged back-office functions, for instance) as they may have implications for stakeholders. Many insurers would be cautious about a potential bidder assuming a massive IT synergy because of the potential impact on staff, customers, other stakeholders and the opinion of regulators.

In short, price — while important — is often not the main driver of bid selection in a divestment. The long-term outlook and protection of policyholders within the divested asset — because of its ongoing reputational and regulatory implications for the seller — can be far more significant.


The 2020 EY Global Corporate Divestment Study focuses on how companies should approach portfolio strategy, improve divestment execution and future-proof their remaining business.

About this article

By David Lambert

EY Global Insurance Strategy and Transactions Leader

Helping clients to assess the merits of investing into, or divesting of, companies in the insurance sector.