There is speculation that QBE and other listed general insurers may be looking at making their own acquisitions rather than pitching themselves as targets, as they battle against profitability pressures from all angles.
The chief executive of reinsurer Willis Re Australia, Cameron Green, said that while 2016 was "fairly light" in Australia for mergers and acquisitions, the tide might turn this year.
"I would suggest that every CEO of the listed insurance companies in Australia are thinking M&A.; There is no doubt they would be looking at targets and assessing what's going on because the settings in their own business are tough," he said.
"There is very little growth and organic growth is complicated at the moment. It's a competitive industry we work in, so I think they would all be thinking M&A;, but they are all saying 'hang on, what's the motivation and value?' "
Data released jointly by JPMorgan and actuarial firm Taylor Fry last week reveals that Australia's general insurance sector is feeling the pressure, with their survey revealing significant claims cost increases to some business lines and tipping premium rate increases in 2017.
For the 2016 financial year survey respondents reported marginally improved overall combined ratios of 92 per cent, down from 94 per cent in 2015. Combined ratios are a measure of an insurer's profitability, and compare expenses and claims with premiums earned.
A ratio below 100 per cent shows that the company is making underwriting profit, while a ratio above 100 per cent shows it is paying out more money in claims that it receives from premiums.
While this is a headline improvement it hides an underlying deterioration, as claims in 2015 were impacted significantly by catastrophic events that saw insurers lose more than $1 billion in profit.
"Profitability has marginally improved on 2015 in commercial, driven by lower catastrophe costs," Taylor Fry principal Kevin Gomes said.
"However, our findings show that concerns of insurers and brokers are remaining fairly consistent since 2015 with competition, rates and capacity the main concerns. Participants are expected to make cautious efforts to restore profitability."
Against this backdrop and as general insurers look to reporting season, Mr Green said investors would be wanting the companies to think about M&A.;
"They would be wanting them to look at opportunities and asking questions about how they are going to grow," he said.
"In fact they're demanding it, if organic premium growth is anaemic, then they are asking how are you going to grow, how are we going to get the dividend and how are we going to get our earnings per share up?"
There was a swath of M&A; throughout 2015 with a number of key deals being undertaken, including global property and casualty insurer ACE Group's $US28.3 billion ($37.5 billion) deal to snap up The Chubb Corporation and, in Australia, Insurance Australia Group buying Wesfarmers' insurance underwriting unit in a $1.85 billion deal.
But Mr Green speculated that the insurers would be looking at buying "portfolios of business and different avenues of distribution," instead of outright purchases.
"Rather than QBE saying 'I am going to buy Suncorp' for example, I think most of them are looking at different pockets of business that could be accretive to theirs," he said.
"They could also be looking at parts of a business that have been successfully incubated outside of their business, rather an another insurance operating entity."
Morningstar senior equities analyst David Ellis agreed that whole-of-business acquisitions would be unlikely, with offshore expansion limited for Suncorp and IAG.
"I would be surprised if the Australian general insurers were in the market to acquire," he said.
"I think all three big insurers will focus on organic growth and particularly productivity improvements and more profitable underwriting. Expanding distribution capability is a possibility."
Mr Green said future deals might look more like Zurich Insurance's recent $741 million bid for travel insurance group Cover-More.
"Another example is the Berkshire Hathaway IAG deal. I don't see that as M&A;, but as a way they can access a revenue stream that they couldn't otherwise get to," he said.
This comes after market speculation that QBE was in takeover talks with German insurance giant Allianz.
Analysts have questioned the rationale for buying QBE when it is still in turnaround mode, and relatively expensive compared with its global peers.
Mr Green also asked whether the deal was in the national interest.
"Anyone buying one of the big Australian companies has got a few hurdles to clear. I think they would certainly have a look at them," he said.
"Does it make sense – it probably does. But is it in Australia's best interest? No, I don't think so."
However, Mr Ellis does not see problems with the potential QBE-Allianz deal from a national interest perspective.
"QBE is the third largest insurer in Australia with approximately 17 per cent market share behind leaders Suncorp and IAG," he said.
"The majority of QBE's business is offshore, predominantly in the US and Europe-UK, so I would not think a takeover by a German insurer would not be in the national interest."
JPMorgan insurance analyst Siddharth Parameswaran said last week that QBE might still be attractive to insurers, especially those seeking speciality lines experience.
"Particularly in Lloyds, or those capable of restructuring their underperforming US operations," he said.
"This could include the likes of underperforming Japanese/Chinese insurers (who we think are more likely to build speciality capabilities) and large US property and casualty insurers that might be in a position to improve QBE's underperforming US operations."
Chubb and Travelers, as two of the largest US P&C; insurers, and with similar business models to QBE's, are examples of companies that would fit this profile.
QBE refused to speculate on the Allianz deal when contacted by the Financial Review.
