“We anticipate that legacy insurers will continue their focus on cleaning up and reinforcing their core portfolios over the near term [and] peripheral businesses in portfolios will continue to become the topic of exploratory divestiture conversations,” the Bain report noted. “This will create attractive opportunities for companies looking to strengthen their market positions or pursue adjacencies.”
M&A opportunities will evolve much as they did during 2020, Bain said, growing, in part, from partnerships and initial technology investments and sale of units that don’t fit with core strategies.
“Partnerships and investments will continue to be the primary approach for companies pursuing new capabilities,” the Bain report explained. “That said, over time, as insurers become more confident about which capabilities will be most important in their ability to apply these capabilities at scale, we expect to see increased interest from traditional insurers in owning and advancing proprietary capabilities.”
Insurers’ continued push to streamline and focus on core strengths will also keep M&A going strong, Bain said. This trend was already well underway in 2020, the firm noted.
“The year 2020 continued a multiyear trend in which global insurers are streamlining their businesses by simplifying operations and redefining themselves with a narrower scope and stronger core,” Bain said. “Pressure on profit pools from low rates as well as increasingly complex capital requirements have forced [carriers] to take a more critical look at the ability of their business units to create sustainable value.”
As well, Bain noted that higher pressure on management attention and digital investment needs for core operations made less-central business units “seem less and less attractive.” These factors helped make divestitures the driving factor behind most insurance M&A worth more than $1 billion over the past 5 years, Bain said.
Relevant transactions in this category include Aviva pursuing the sale of its Singapore business and Italy’s Aviva Vita; AXA’s purchase of XL and AXA’s sale of its business in Poland, Czech Republic and Slovakia; and also AIG’s plan to separate its life and retirement business to create a simpler corporate structure.
For some companies, however, doubling down on core strengths can mean a merger with a rival. Bain cited Aon’s $30 billion bid for Willis Towers Watson as a big example of this in 2020, as well as Allstate’s purchase of National General to grow in nonstandard auto insurance and reinforce its independent agent network.
Bain’s full “Global M&A report 2021” covers multiple sectors beyond insurance.
Source: Bain & Co.
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