M&A among insurers pegged at $200 billion-plus thru 3Q 2015

More wheeling and dealing is expected. In a November 10 report, Moody’s Investors Service pegs the value at M&A activity through the third quarter of 2015 at a whopping $200 billion — the highest level in several years.

What’s fueling the transactions? A weak global economy and increased regulation are driving sellers to seek buyers, the report notes. For potential acquires, low interest rates and funding costs, plus the ability to achieve economies of scale and access new markets, are the main motivating factors. And these objectives can be secured more easily by combining with another insurer than by growing organically.

“We expect M&A to halt only if interest rates rise significantly, or equity markets fall dramatically — although even the latter reduces sales prices,” says Moody’s Global Insurance Group Managing Director Simon Harris. “We expect that interest rates will remain at historically low levels globally and that debt-funded M&A will remain attractive for some years,” he adds.

The report cautions, however, that rock-bottom interest rates could have harmful, long-term effects on product manufacturers — particularly life insurers — as the companies’ portfolio returns remain in large measure tied to interest rate yields.