Europe’s insurance coverage trade is rising from the coronavirus disaster with a stronger urge for food for mergers and acquisitions (M&A), together with expectations for robust earnings progress in 2021, in response to Moody’s annual survey of chief monetary officers (CFOs) from 21 main European insurers.
Strong M&A exercise, which started within the second half of 2020, is more likely to proceed, with 62% of survey respondents saying they count on to participate in acquisitions or disposals over the subsequent two years, up from 40% previous to the pandemic.
European insurers see M&A as a way of adapting their enterprise fashions to sluggish long-term financial progress and persistently low rates of interest, mentioned Moody’s Buyers Service in its report titled “Insurance coverage CFOs prepared for M&A amid cautious submit pandemic optimism.”
Divesting non-profitable companies is now a key objective for European insurers as a result of the coronavirus disaster has put further strain on already weak markets, the report famous.
“Extra insurers are specializing in higher managing their again books of enterprise because of low rates of interest, and one possibility is the disposal of those operations,” it mentioned, noting that insurers’ divestment plans had been revealed by the survey as evenly cut up between home, superior and rising markets. Alternatively, all respondents all for acquisitions mentioned they had been contemplating alternatives of their home markets
“We count on acquirers to deal with transactions that enhance their market share, serving to them obtain better scale and value synergies, whereas on the similar time strengthening their aggressive place,” mentioned the report.
Some insurers are in search of offers that enhance the attain of their distribution and diversify their revenues, it added.
“Because the pandemic has emphasised the significance of expertise, insurers may additionally goal acquisitions that carry technological experience, serving to them additional streamline their companies, bolster digital capabilities and improve buyer expertise,” Moody’s affirmed.
The coronavirus disaster has exacerbated many pre-existing headwinds going through the trade, equivalent to sluggish financial progress, the report defined.
Certainly, regardless of the relative optimism in regards to the prospects for 2021, the report mentioned that 76% of European insurance coverage CFOs named low financial progress as certainly one of their high three worries, making it the sector’s most urgent concern.
Persistently low rates of interest are the trade’s second largest problem, cited by 57% of respondents as a high three concern, intently adopted by market volatility with 52%.
The issues over low rates of interest have elevated since 2019 — reflecting two years of serious fee decreases from already low ranges, mentioned Moody’s, including that survey respondents additionally cited issues over political and regulatory danger and aggressive strain.
Moody’s mentioned that European insurers are cautiously optimistic for 2021. Most European insurance coverage CFOs count on a rebound in earnings this yr because the financial system recovers from the coronavirus pandemic.
Roughly 35% of survey respondents predict double-digit progress in working income over the subsequent 12 months, whereas 20% of CFOs foresee a excessive single-digit enchancment, mentioned the report.
Within the non-life sector, CFOs count on additional worth will increase in business traces however continued pricing strain in retail traces, mentioned Moody’s.
In addition they foresee restricted further coronavirus losses as a result of two-thirds of the CFOs “have excluded pandemic danger when underwriting new enterprise or renewing present insurance policies,” in response to the report. All respondents now count on reserve releases to stay broadly secure or enhance.
All in favour of Carriers?
Get automated alerts for this matter.