Slew of insurance deals are on the cards for 2017 as Solvency II bites

 
Oliver Gill
Follow Oliver
FORTUNE Most Powerful Women Summit - Day 2
Warren Buffett said in his latest annual report he's a big fan of investing in insurance firms (Source: Getty)

Dealmaking in the insurance sector will shift into top gear in 2017 as the need to set aside regulatory capital "forces companies to grow or go", according to a report by experts.

Nearly all firms (94 per cent) surveyed by accountancy firm KPMG expect to make at least one divestiture during 2017, with the lion's share (84 per cent) planning to make between one and three acquisitions this year.

Read more: This isn’t an M&A bubble: It’s the start of an unprecedented boom

The report found Solvency II regulations, which came into force at the start of 2016 and stipulate the amount of capital insurers must hold to offset risk, were cited as a key driving force behind the need to shake up rationalise operations. One respondent told KPMG:

Those insurers that cannot raise the required capital under the regulation may choose to get rid of businesses if they believe that resulting capital charges could otherwise negatively impact returns.

The Asia-Pacific region is the area buying firms will be focussing on, with 47 per cent of respondents saying the were looking at the region for purchases.

Meanwhile UK, Italy and Spain were the main areas where firms were looking towards divestiture.

China

The findings come weeks after reports Chinese insurance watchdogs are planning to relax controls on the overseas expansion of national insurance firms that have been in place for six months.

Read more: Is the Chinese insurance M&A market about to wake up?

As the second largest insurance market in the world, many Chinese firms have looked beyond their borders for growth; until recently M&A activity has been doubling annually with $11bn (£9bn) of transactions announced.

“Insurers are clearly hungry for good M&A opportunities,” said Ram Menon, KPMG's global head of insurance deal advisory. “They are focused on transforming their business and operating models, and even with geopolitical uncertainties, they are aggressively looking at deals that can help meet their objectives.”

Related articles