M&A activity picking up
Mergers and acquisition activity in the US insurance industry picked up in 2014 after a drop in the previous two years, as insurers try to capture growth opportunities in the domestic and foreign markets. In the last 12 months, the majority of deals were in the $13 billion life and health space, while deals in reinsurance accounted for another $10 billion. The insurance industry is covered by funds such as the SPDR S&P Insurance ETF (KIE).
The largest deals announced recently include the acquisition of Protective Life by Dai-ichi Life, as well as the merger of PartnerRe (PRE) and Axis Capital Holdings (AXS). In 2015, the total announced deal value has already crossed $5 billion.
Entering growth markets
The mature condition of developed markets forced insurers to seek growth in emerging markets like Central and Eastern Europe (or CEE), Asia, Latin America, and Africa.
As shown in the chart above, these economies saw much higher premium growth rate when compared to the matured markets in 2013. The only exception is a drop in life insurance premiums in CEE due to the negative impact of taxation changes in Poland. So, the bigger players in the advanced markets, such as MetLife (MET) and AIG (AIG), are increasing exposure to these geographies to capture the growth in revenues and improve their profitability.
Emerging markets provide exposure to a growing middle class and rank low in terms of insurance penetration, or insurance premium as a percentage of GDP. They also rank low in terms of density, or insurance premium per capita of population. These metrics provide significant scope of business development. Key players in the advanced markets are entering these economies mostly through joint ventures with domestic players or through acquisitions.