If the strategic thinking of
the majority of US insurance executives is transformed into action,
a surge in merger and acquisition (M&A) activity in the
industry lies just around the corner.
This is a key message to
emerge from a survey of 100 senior insurance industry executives
conducted in June by professional services firm KPMG.
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“What we will see are firms
focusing on their core strengths, divesting of certain assets or
markets that don’t fit those strengths and more aggressive M&A
strategies,” said Laura Hay, national leader of KPMG’s insurance
practice.
Specifically, 63% of
respondents to KPMG’s survey said their companies will be involved
in a merger or acquisition as a buyer or seller in the next two
years – including 54% who said they will be buyers.
In addition, 70% of
respondents indicated that their companies have significant cash on
their balance sheets. Some 30% said the highest-priority use for
that capital will be a strategic acquisition for their company,
followed by 20% who say they will invest in technology.
The key driver of increased
M&A activity, according to 47% of the executives, is access to
new markets, followed by regulatory changes and pressures (38%) and
product synergies (33%).
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By GlobalDataRespondents to the survey
represented a broad spectrum of the industry.
KMPG noted that, based on
revenue in the most recent fiscal year, 40% of respondents were
from institutions with annual revenues exceeding $10bn, 40% with
annual revenues in the $1bn to $10bn range, and 20% with revenues
in the $100m to $1bn range.
In its survey KPMG also asked
respondents to identify the most significant barriers to growth
over the next year. The most frequently cited barriers were pricing
pressures (59%) and regulatory and legislative pressures
(41%).
In addition, 76% said they
are concerned about the impact external factors, such as regulatory
changes and the economy, will have on their company’s
future.
Hay noted: “The tough pricing
and regulatory environment has insurers scrambling to determine the
way forward. They all recognise that maintaining the status quo is
not an option.”
A silver
lining
Despite the concerns over pricing and regulation, the
majority of insurance executives surveyed expect the economy,
revenue, and employment to improve in 2012.
Fifty-seven% expect better
economic conditions and 44% say they plan to add
personnel.
In addition, 50% said their
company’s current revenue is higher than last year and 70%
anticipate that their revenue will be higher one year from
now.
However, insurance
executives’ longer-term outlook is muted.
Only 15% expect a full
economic recovery to happen by this time next year, with 58%
expecting it by the end of 2013 or 2014, or even later.
When asked when they expect
their company’s US headcount to return to pre-recession levels, 22%
said it already had or would by this time next year, with 48%
saying by the end of 2013 or 2014 or later.
Meanwhile, 19% said their
company’s US headcount would never return to pre-recession
levels.
Hay concluded: “Insurance
leaders see things moving in the right direction with a cautious
optimism.
“They understand how the general economy impacts their
business and they have their work cut out in terms of developing
sustainable and profitable growth.”
