Following the release of survey results, Jack Gibson, Towers Watson's global lead for insurance M&A, alluded to a number of transformational deals in the U.S. life insurance sector that have happened in the recent past. Still other insurers have either “exited or entered the U.S. as a way to alter their geographic diversification,” he says.

Meanwhile, valuation gaps remain a central challenge to the market, Towers Watson notes. Acquirers are seeking a global average of about 15-percent return on capital, ranging from approximately 14 percent for deals in western Europe and the Americas, to roughly 17 percent in Africa and the Middle East.

Further pressure on valuations may come from the fact that only a fifth of respondents said they plan to divest operations in the next three years, compared to 34 percent that have completed one or more divestments in the past three years.

“If you combine fewer plans for companies to divest with an increased appetite for acquisitions, we could see the possible reemergence of a seller's market driving competition for assets, which would reduce target returns and raise valuations,” Gibson adds.

Many companies display a regional “home bias” for where they are likely to target their M&A activity, but there is universal agreement that the Asia Pacific region provides the most attractive opportunities over the next three years, while North America rated second least attractive. Despite the fact that western Europe was rated at the bottom of the regional attractiveness league, Towers Watson notes that 55 percent of respondents said Solvency II would promote acquisitions because of reasons, such as restructuring and capturing diversification benefits.

“There should be cautious optimism surrounding the insurance sector and related M&A across North America,” Gibson concludes. “Deal making is being driven by consolidation as a response to depressed premiums and more stringent capital requirements. This push[es] firms to expand product areas in order to diversify risk and maximize return on capital.”

The principal drivers for M&A activity vary among insurer type. For instance, p&c insurers, composite and reinsurance firms aim to expand into new territories and business segments to enable growth, whereas life insurance respondents rated general economies of scale as the most important influence on deals.