With growth opportunities limited in mature markets, many insurers are looking to emerging markets for future expansion, in particular China, Southeast Asia and Central and Latin America. Figure F-10 highlights gross written premium (GWP) growth in emerging markets compared to developed markets from a 2003 base.
While the number of non-life insurance M&A deals in emerging markets as a percentage of the total has remained fairly constant across the cycle (following a peak in 2009), the proportion of capital deployed (aggregate deal value) is on the increase (see Figure F-11). Given the benign growth conditions in mature markets and the over capacity within, this trend is likely to continue in the short term. The potential scarcity of viable targets will ensure that supply lags demand, which will in turn continue to drive premium valuations.
While acquiring an emerging market platform has its obvious attractions, there are a number of considerations that should not be overlooked. In order for an acquisition to be value accretive, it should create a return greater than the cost of the capital deployed. The key to this is the successful implementation of an integration strategy. This may involve fully absorbing the target and implementing a full re-branding and re-structuring exercise to promote the culture and values of the acquirer. For emerging market acquisitions, the integration strategy can be a major challenge as local cultures and ways of doing business can be very different to those that exist in mature markets.
The opportunity to achieve specialty product diversification and territorial growth are two factors driving the strong interest in the Lloyd’s market at present. Its reputation as a specialty underwriting center of excellence and the availability of its extensive global insurance and reinsurance licensing are the key catalysts. This gives participants access to specialty business via the Lloyd’s broker network together with, subject to business plan approval, the capability to underwrite business in emerging markets from a London base.
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