Consistent with our expectations, mergers and acquisition (M&A) activity in Canada’s insurance industry continued to increase in 2011 as more carriers and brokers sought to expand market share, drive premium growth, and seek economies of scale. A continued low interest rate environment and sluggish improvements in soft premium rates continued to squeeze margins and drive many players to seek scale. If more deals could be found, chances are more deals could have taken place.
We expect M&A deal volume in the Canadian insurance sector to continue to strengthen into 2012. Generally, there appears to be more buyers looking to add scale and diversify into new markets and geographies than there are willing sellers. With investment yields likely to remain low (and therefore asset values relatively high), and premium rates stagnating and continuing to squeeze margins, this phenomenon is likely to continue into 2012. Outside of potentially market changing events, such as demutualization of property and casualty (P&C) carriers, activity is expected to continue to be driven by the brokerage sectors where willing sellers seeking an exit at historically high multiples can continue to be found.
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|Capital Markets Flash: Perspectives on Insurance M&A
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