Bain: insurers' investments in InsurTech will continue in 2021, in a market rich in ideas and capabilities

4 March 2021 — Daniela GHETU
Bain: insurers' investments in InsurTech will continue in 2021, in a market rich in ideas and capabilities
"The year 2020 continued a multiyear trend in which global insurers are streamlining their businesses by simplifying operations and redefining themselves with a narrower scope and stronger core." Reads the latest Bain's M&A Report for 2021.

"Pressure on profit pools from low rates as well as increasingly complex capital requirements have forced insurers to take a more critical look at the ability of their business units to create sustainable value. Because of the higher demands on management attention and the need for digital investments in the company's core, peripheral businesses seem less and less attractive," the report says. In particular, European insurers, with Solvency II capital/risk diversification benefits protecting multilines, are inclined to question the need for geographic reach and thus tending to divest. "In fact, divestitures have represented about 70% of insurance M&A deals valued at more than USD 1 billion over the past five years," authors underlined.

The report cites some examples as Aviva selling its Singapore business and Italy's Aviva Vita or AXA reducing its footprint and focusing on its P&C business, following the 2018 purchase of XL. Building on the 2019 separation of its US business, AXA completed the sale of its Poland, Czech Republic, and Slovakia businesses to Uniqa in October 2020.

On the buyers' side, pooling similar entities' operations helped "strengthen the core and provided opportunities for meaningful cost synergies." As an example, the report cites the Aon's USD 30 billion bid for Willis Towers Watson, the largest insurance deal in 2020 that will create the world's largest broker and generate USD 800 million in cost savings. "If the deal clears regulatory scrutiny, mandated divestitures will likely create attractive opportunities for others to acquire assets."

A special section of the report is dedicated to insurers' investments in InsurTechs, stressing out that although at a lower level than in 2019, they have continued also in 2020. A rebound is expected for the current year. "The continued market enthusiasm for insurtechs suggests that there is no shortage of innovative ideas and capabilities that could benefit insurers," the report reads.

Bain's forecast for 2021 and beyond shows legacy insurers continuing their focus on cleaning up and reinforcing their core portfolios over the near term. "Peripheral businesses in portfolios will continue to become the topic of exploratory divestiture conversations. This will create attractive acquisition opportunities for companies looking to strengthen their market positions or pursue adjacencies."

While partnerships and investments will continue in insurers' search for new capabilities, this year is expected to bring a more circumspect approach aiming at "sorting the wheat from the chaff".

The full report is available online, including several chapters dedicated to other industries.

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