Staff writer
Insurance industry players have been advised to think about optionality when considering deals at a time. 2025 is promising to reflect an increase in transactions compared to prior years, Insurance24 reports.
This comes as an expert has warned that deals do not always work out, thus a need to have the capacity to deal with the aftermath.
Presenting on mergers, acquisitions, and strategic alliances in the insurance sector during the ongoing Insurance Strategic Leadership Summit organised by the Insurance Institute of Zimbabwe (IIZ) in South Africa today, Milliman Africa CEO David Kirk said there are a myriad of options that one needs to think of before engaging in a deal.
“Now, another theme from this—not necessarily a theme, but advice: when you are getting involved in a deal, the more you can think about the optionality.
“What might happen down the line? How can you take advantage of a successful joint venture? How are you going to get out of Dodge when things don’t go according to plan? Definitely a theme coming through. These deals do not always work out. And the people who negotiated then are the same people who are dealing with the aftermath of the deal,” he said.
Kirk said the liberal economic act is currently kind of a trend, which might also be a function of now, was that inflation was starting to get a little higher; thus, interest rates should be raised.
But another thing that happened during the last decade or so, he said, was that private equity acquisitions of insurers and brokerages in particular have been driving a lot of deals.
“And then we started having some problematic deals, but the enthusiasm for regulators, for private equities to be the owners of insurance companies, has definitely faded,” he said.
He said the mutant monetary authority put out a note a couple of years back, based on what they saw around the rate dangers there.
“And there’s a deal to touch on in Europe, in Italy, about how private equity owners can be great, can provide capital, can provide exits for insurers, but also make the capital secretions.
“So that’s also dampened some of the enthusiasm for the deals. Now, when you add in the broking transactions, you see that actually this is all about broking transactions.
“And the little things that I think of as insurance companies are actually a malarious construct.
“There’s a multiple of the insurance company acquisitions that really are about distribution. All of this has, again, been a consolidation of brokerages. There is a global development trend, which is a slowdown of growth in insurance, and therefore pressure on consolidation. And consolidation in brokerages has also been a major theme. You can see the same overall patterns there in terms of spikes in the cost of capital being low and decreasing. So this is clearly a very systematic trend,” he explained.
Kirk added that while there are several tones of deals every year, several tens of deals every year, 2020 was remarkably low, with all suggestions being that 2025 might reflect an increase in the more normal times.
But he said a little bit of the trend is from the global marketplace, where there are economy-specific, developing market-specific, and activist-specific drivers from an overall economic, interest-rate, and consolidation perspective.
“There’s a couple of years before growth is going to emerge, and every year the market sector just gets shifted out, so we still haven’t yet seen the growth in penetration. I’m still heavily involved in Nigeria, fed up with Nigerian actual society, so I really want it to come right for them, but it’s been a difficult time.
“So yes, all natural has exited the life insurance market in Nigeria, and the only reason they’ve left is they continue to shrink as a group. Hard and absurd possible growth plans that you are familiar with, and this is a reminder that anytime there’s a buy and there’s a sell, I think about that from the stock market. No matter how sure you are that it’s a good time to sell that stock, somebody on the other hand is buying it from you. Somebody’s got the exact opposite view from you,” he said.
He added that if one ever wanted to make final consultants, they should just pick out which decade they’re talking about getting rid of their core businesses; they should focus on the core and get rid of their non-core businesses.
“You shouldn’t listen to those consultants who say get rid of your core businesses. Get rid of the non-core businesses, and the next step is diversification and expansion, and you can improve your return on capital even by buying moderately performing businesses, but through the wonders of magical diversification, you’ll improve your return on capital,” he said.
