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Cultural integration neglected during insurance M&A

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Only four out of 10 (42%) insurance companies recognise the critical importance of cultural integration

Insurance firms may not be considering cultural integration as a measure of success during mergers and acquisitions (M&A), according to a survey of executives conducted by Willis Towers Watson M&A Risk Consulting in conjunction with Mergermarket.

Defying Gravity: Insurance M&A on the rise polled 750 senior insurance executives from life, property and casualty, and composite insurers, as well as reinsurers, regarding their outlook on M&A in the insurance industry, and their own companies' plans and strategy.

The research found that most focus on top-line growth as a measure of success for acquisitions. The extent of revenue and commercial synergies (62%), return on capital (55%), and financial synergies (48%) are the most frequently cited factors when judging success.

The report also found that only four out of 10 (42%) insurance companies recognise the critical importance of cultural integration, and of hiring and retaining employees, to the overall success of a deal. The research highlights that only one in 10 (12%) use employee engagement as an indicator of integration success.

Steve Allan, EMEA mergers and acquisitions practice leader at Willis Towers Watson, said that as employee engagement and customer experience have a known link to improved financial performance it is “disappointing” that employee engagement does not feature more prominently among deal-success measures. “Unaddressed cultural clashes are the most cited reason for deal failure, which, without proper measurement warning signs, may be overlooked and could ultimately lead to a deal failing to deliver on its promise,” he said.

“Serial acquirers have become experts at M&A, so for this group to recognise the importance of people in the outcome of deals suggests that we should all take heed. Keeping people issues front and centre at all stages of the deal should support a successful integration process, and ultimately help deals keep on track to reach their financial objectives.”

M&A activity in the insurance sector surged during 2015, with €129.3 billion (£100.9 billion; $143.5 billion) worth of deals – three times the deal value recorded during 2014.