The new deal

Driving insurance transformation with strategy-aligned M&A

Disruption is shaking the fundamentals of the insurance industry. This is true structural change, not just a cycle. New technologies, new competitors, new markets, new regulations, and changing consumer behaviors are all creating tremendous opportunities, and posing significant risk to the legacy insurance business model. To succeed in this dynamic environment organizations are reevaluating their portfolio of business and rationalizing their global footprint to strategically determine ‘where to play’ and ‘how to win’ in the future. One of the immediate consequences of this trend is the expected rise in deal activity in the global insurance industry.

Industry participants are increasingly getting more strategic about their inorganic growth initiatives. Traditional approaches to mergers and acquisitions (M&A) which have been largely reactive to immediate deal opportunities, are no longer sufficient. Insurance executives and their shareholders expect their investments to drive transformation within their organization over the long term, rather than deals that could be financially accretive in the short term but are not sustainable.

To find out how this shift towards strategy-aligned mergers and acquisitions (M&A) is influencing deal activity in the insurance industry, Matthew Smith Global Strategy Group Insurance Sector Lead KPMG in the UK we commissioned Mergermarket to interview 200 insurance M&A decision-makers across all segments and regions. We asked about their M&A plans for 2017 and beyond; about their alignment with corporate strategy; and about their current capabilities and initiatives to successfully execute deals in this environment.

What we heard suggests that organizations are recognizing the need to reevaluate their business and operating models and, as a result, redefine their M&A ambitions and appetite. To get this right, however, insurers will first need to take pause, look at their overall strategic vision and objectives. They will need a deeper understanding of how they want to serve their customers and what propositions they want to offer. Only then should they consider what role their deal-making activities will play, balancing what they will need to buy or sell, against options to build, rent or collaborate.

In The New Deal we explore the trends shaping today’s M&A insurance landscape, and the need for greater alignment between corporate development, M&A activities and corporate strategy. Interviews with leading insurers globally confirmed that this approach will be critical to evaluating the ‘strategic-fit’ of their M&A, partnerships and venture capital investment opportunities. As the research suggests, this will require a different mindset, particularly for those lacking the internal capabilities and an enterprise-wide M&A playbook to enhance and deepen their due diligence, deal evaluation, and post-deal integration/separation processes.

On behalf of KPMG International, we would like to thank all the insurance executives who participated in our research, and a very special thanks to Chris Wei, Global Chairman, Aviva Digital and Executive Chairman, Aviva Asia, who shared his views

on how Aviva has evolved its M&A strategy to “deliver a brilliant customer experience”, and take advantage of the new opportunities in the industry.

We hope this report provides valuable insights into how strategy-aligned M&A can help the industry drive future growth and establish new relevance with consumers, investors and shareholders. To find out more about these trends — or to discuss your company’s specific needs — we encourage you to contact your local KPMG member firm.

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