Further consolidation within the insurance industry may continue if Allianz can find another acquisition.
Allianz SE, Europe’s largest insurer, is reportedly seeking a major acquisition target, according to CEO Oliver Bäte. Yet even as the Germany-based insurer signaled its interest in merging with another large insurance entity, the CEO emphasized his company would be reluctant to pay a premium price for an acquisition.
Bäte added that his company, which has a market valuation in the range of 80 billion euros, would not pursue a hostile takeover of another insurer, preferring instead to find a willing merger partner of equal size. If it cannot purchase a large insurer, Bäte’s comments may be viewed as a sign it would welcome a combination with smaller insurers considering a sale.
While the Allianz CEO stressed that the company will not overpay for an acquisition, the insurer’s slumping stock performance — its stock has declined about 5% this year — is likely pushing it toward a major merger to bolster earnings. The insurer may be flush with surplus capital now, but a persistent low interest rate environment has squeezed investment returns. Accordingly, an acquisition could accelerate growth in what seems to be a sluggish marketplace for insurers.
A deal might also result in cost savings if the merged entities combine functions. Through a merger, Allianz would be able to scale up in markets where it wants to expand — perhaps in the U.S. and the property casualty sector. However, Allianz must find a partner first.
Targets in U.S., Across the Globe
Although Allianz made no official announcement about a specific takeover target, the company was linked to several insurers as potential M&A partners. In Europe, Allianz could be eyeing a merger with Zurich Insurance Group AG of Switzerland, as well as RSA Insurance Group and Aviva in the United Kingdom. Hartford Financial Services Group was said to be on its radar on the other side of the Atlantic.
The insurer’s appetite for acquisitions is in keeping with Bäte’s appetite for deal-making since he started as CEO in 2015. Last year, Allianz attempted to buy XL Group, but was beaten out by France’s Axa SA’s $15.2-billion bid. The insurer was more successful when it bought out the minority investors in Euler Hermes — a Paris-based trade credit insurer — for $2.2 billion earlier this year.
Even though a merger could quickly jolt an insurer’s earnings, deals among larger companies come with some risks, notably the logistical burden of integrating two sizable entities. After purchasing Bermuda-based XL Group, Axa’s share price slid 12% as investors expressed concerns that the company overpaid.
Further, several Allianz board members are reportedly opposed to a significant acquisition. Meanwhile, its main target, Zurich Insurance, has also let it be known that it doesn’t want to merge with another company. If Allianz intends to acquire another insurer, it may be forced to pay a premium price — or find another way to improve its valuation.
Insurance Landscape Consolidating
In a broader sense, Allianz’s move toward acquisitions mirrors the insurance industry’s recent M&A spree, particularly in the U.S. Last year, the U.S. led all other regions in insurance M&As. Despite a dip in insurance deals in Europe, M&As there are expected to pick up this year.
In recent months, U.S. private equity firms have snapped up life insurers, which have included Cornell Capital’s purchase of Talcott Resolution. Interestingly, Hartford Financial Services Group was mentioned as an Allianz merger target. As The Hartford has shed its life insurance business to concentrate on property and casualty insurance, the company would increase Allianz’s footprint in a sector where it aims to expand.
For insurance agents, the ongoing consolidation among insurers means carriers they have long worked with may change hands. This shouldn’t have a meaningful impact on how carriers service their policies, but it’s always advisable to research the acquiring company to see if they have the financial capacity to guarantee your clients’ coverage.