The Australian insurance industry looks set to experience further consolidation in the coming year. The JP Morgan Deloitte General Insurance Industry Survey for 2006 says Australia is still one of the world’s most active markets for mergers and acquisitions.

Across all sectors and industries, $60 billion has been spent on consolidation so far this year, a rise of 47% on last year’s consolidation plays. Plenty of that money has been flowing around the insurance sector.

As well as the proposed Suncorp acquisition of Promina, the industry has seen Wesfarmers take over OAMPS, and a joint venture between FMG Insurance and Australian Unity. And the consolidation is likely to continue.

JP Morgan and Deloitte say Australian general insurance organisations are enjoying strong valuations at present. Their share price/earnings multiples tend to be much higher than those of their international counterparts, and analysts expect plenty of buyer interest as a result.

The survey predicts little change in the ownership of the top five Australian insurers, but it says there is plenty of scope for mergers and acquisitions among the mid-tier and small players. Specialist insurers are likely to be in particularly high demand. Foreign insurers and private equity firms will probably lead the consolidation.