Last year was a time of “transformational” merger and acquisition (M&A) activity in the industry, and more is on the way, according to Ernst & Young (EY) Global Insurance Transactions Leader David Lambert.

In a new report, Global Insurance M&A Themes 2016, he says “fundamental industry transformation is ongoing and indeed is likely to accelerate, pointing to the likelihood of a highly active insurance M&A market for some time to come”.

The total value of global insurance deals last year was about $US111 billion ($154.49 billion), the greatest activity in “recent years”.

The report says the main driver was the incidence of “megadeals”; the top 10 global insurance deals accounted for 67% of all deal value.

Of the top 10 deals last year, five were led by Japanese insurers, investing largely in the mature US and UK markets.

Japanese insurers spent $US21.9 billion ($30.48 billion) acquiring North American insurers and $US5.4 billion ($7.52 billion) on European insurance acquisitions.

The report identifies four drivers of the M&A activity: capital optimisation; reducing operating and project expenditure; the need for growth, scale and new capabilities; and investment in technology.

On the latter “transformational theme”, EY says: “It remains to be seen whether digital proves to be an opportunity or a threat to incumbent insurers.

“What is beyond doubt is that rapid technological change is affecting every facet of the insurance value chain, from customer acquisition, predictive analytics, risk management and telematics… through to potentially revolutionary changes to insurance administration from technologies such as… robotics.” 

The report notes the trend of convergence between the insurance industry and non-financial sectors such as technology and consumer-related businesses.

“The type of M&A activity seen to date, including insurers establishing ventures to invest into developing financial technology companies, is surely just the tip of the iceberg of what is likely to be a series of increasingly large and strategically important transactions.”

Top 10 deals last year by disclosed value

Source: EY