Investors attracted by strong growth potential and cheap valuations, says KPMG.
Wealthy Japanese insurers and private equity houses are looking to snap up Western insurance companies, says KPMG.
Mark Flenner, head of non-life insurance at KPMG corporate finance, said insurance equity prices have been hit hard by the economic downturn. But this has also opened up a wealth of opportunity for the focussed investor.
“Alongside London, New York and Bermuda, Tokyo is one of the most powerful insurance centres in the world," he said. "To date, Japanese insurers have executed quality, local deals but they are now realising the time is right to diversify internationally, illustrated recently by Tokio Marine acquiring insurers in the UK and the US.
"While exchange rate movements and falling global stock market prices across the world, including Japan, cannot be ignored, Western non-life insurers have seen their equity pricing almost halve in value in the space of six months, creating opportunity for potential acquirers. The fundamentals of non-life are compelling with increased demand for products driven by uncertain economic times and a more risky environment.”
He added that with such an enticing growth story and strong fundamentals, brave cash-rich private equity houses are also considering the potential of non-life insurance acquisitions.
"Private equity houses are under increased pressure to invest their large war chests and insurance is a compelling proposition," he said. "The life sector is in the throws of repositioning but immediate opportunities are available in non-life where risk aversion and the impact of the hurricane season amongst other things are creating increased demand for insurance products. Private equity houses are likely to invest capital in the insurance industry in the short term and look to add debt to the financing mix in the medium term when liquidity flows back into the market.
"The troubles seen in both the banking and insurance industries have given canny investors the chance to acquire ‘crown jewel’ assets, which have fallen foul of the wider economic environment. The collapse of equity prices will, however, sort the wheat from the chaff as the insurance business model refocuses on underwriting performance rather than relying on returns from investment portfolios. Private equity was willing to back the insurance industry when debt was cheap; as we enter a whole new world, we predict the first houses off the mark will enjoy the future winnings."
