Research from Willis Towers Watson announced earlier this month revealed that insurers doing acquisitions in 2016 underperformed peers that stayed away from M&A.

WTW used a performance measure based on share price changes for the comparison.

Noting that it was only the second time in a decade that acquirers lagged non-acquirers based on Willis Towers Watson’s “Insurance M&A Performance Tracker,” the advisory and brokerage firm cited the large deal sizes of a smaller number of deals—compared to other years—as factors explaining the result.

The research is based on an analysis of deals in the insurance sector with a value of more than $50 million. Share price performance is measured as the percentage change in share price from six months prior to the date of a deal announcement until six months after the deal closed.

The last time acquirers underperformed their subindustry index was in 2010, WTW said, noting that for 2016 acquirers lagged the index by 6.4 percentage points.

In a statement about the analysis, WTW noted that only 19 insurance deals were tracked in 2016, and average deal value was almost double the average value in 2015. These figures mirror those from 2010, the last year in which acquisitive insurers underperformed.

Without breaking out property/casualty insurance deals from life insurance deals, WTW noted that the drop in deal volumes could be attributed to a slowdown in activity in the life sector. The fall in P/C deals was less pronounced, WTW said.

With those two years as outliers, Jack Gibson, global M&A lead, Willis Towers Watson M&A Risk Consulting, noted that insurance acquirers had otherwise generally outperformed the market since 2008, adding that the trend was even more pronounced in the past four years.

• From 2008 onward, acquiring insurers outperformed peers by 3 percentage points.
• Since 2012, acquirers have traded 4.4 percentage points above their subindustry index.

In Gibson’s view, those comparisons reveal that “M&A is still beneficial, and it will be interesting to see what the data for 2017 show.”

“The market tends to be nervous around big, transformational transactions and more comfortable when most activity involves smaller incremental bolt-ons,” Gibson noted.

“All other things being equal, big transactions are generally deemed to be riskier for the acquiring company.”

Gibson also noted general trends in equity markets and geopolitical uncertainty as other factors possibly explaining the 2016 results. “Equity markets are doing well, so firms don’t need to do acquisitions as shareholders are rewarding those focusing on organic growth,” he said.

Surprise poll results in the U.K.’s Brexit referendum and U.S. presidential elections could also have been factors, causing shareholder to be cautious in reacting to big-ticket M&A deals, WTW said.

Separate WTW research tracking M&A across all sectors reveals similar trends to those in insurance, with acquirers underperforming firms that did not do deals. The takeaway: Investors may be in “risk-off” mode, especially when deal values have been higher than normal,’ WTW said.

About the Insurance M&A Performance Tracker

Based on analysis from Willis Towers Watson and Cass Business School, the Tracker explores the performance of insurance companies that carry out major acquisitions against their subindustry and regional indexes. Share price performance is measured as the percentage change in share price and is compared with MSCI Indices. The analysis is performance over two time periods:

• From six months prior to the announcement date to one day post announcement
• From six months prior to the announcement date to six months after the deal closed.

Deal data are sourced from Thomson Reuters, and only completed M&A deals with a value of at least $50 million are included in this research.

Source: Willis Towers Watson