Clifford Chance

Insurers focus on established markets for M&A deals

Two thirds (67%) of insurance sector respondents to Clifford Chance's European M&A: On the road to recovery? survey, are focused on pushing for growth in their existing established markets, compared to 33% in new markets over the next two years.

Europe is still an important market for insurers – almost half the number of respondents (47%) see the region as a potential growth market and as offering the most attractive M&A opportunities. Its durable strengths such as a highly developed infrastructure (42%), socio-political, regulatory and legal environment (39%) as well as access to developed technological know-how (31%), make Europe an attractive deal-making destination.

Under half (42%) of sector respondents think that their company might be in a position to undertake an M&A deal in Europe as a buyer this year or next. More than a quarter (28%) estimate that their company may be selling in Europe this year or next, and a further 14% anticipate doing an M&A deal in Europe as a seller in 2015, possibly driven by anticipated increased certainty around Solvency II and economic conditions.

The survey, conducted by the Economist Intelligence Unit (EIU) on behalf of Clifford Chance, canvassed the views of senior executives at close to 400 large companies globally from a wide range of industries, including the insurance sector. Over one-half of companies represented in the survey have annual revenues in excess of US$1 billion.

Executing M&A in the insurance sector is not without its risks. Geopolitical risk (28%) is seen as one of the biggest risks while some sector respondents see opportunities arising from the current situation. Half of sector respondents think that a break-up of the euro zone would increase their company's pursuit of MA& opportunities in Europe. Other top risks to executing M&A in Europe include currency fluctuation risk (28%) and reputational risk (25%).

Globally, Asia-Pacific is the top region of choice (50%) as a potential growth market and as offering the most attractive M&A prospects, closely followed by Europe (47%), well ahead of both North and Latin America and the relatively fast-growing markets of the Middle East and Africa.

Commenting on the results of the survey from the sector's perspective, Clifford Chance's global head of Insurance, Katherine Coates, said:

"Many insurers are clearly focusing on organic growth and on their core businesses, but do see opportunities for M&A in Europe and in home markets. Europe is an environment with lower operational and business risks and, in at least some lines of business, reasonable or good profit margins.

Emerging markets, such as Asia Pacific, are considered riskier when it comes to executing deals with greater challenges in operating an acquired business, particularly when not fully under the buyer's control due to foreign investment restrictions."