Two-thirds of insurance executives and analysts believe that the recent mergers of St. Paul/Travelers and John Hancock/Manulife indicate heightened industry consolidation activity, according to a survey presented at Standard & Poor's recent insurance conference.

Debt and equity markets reward the stock insurance companies for their ability to acquire other companies, believe 71 percent of the industry executives surveyed. “It is clear that the financial flexibility enjoyed by stock companies to purchase another company far outweighs the vulnerability to be acquired,” said Steven Dreyer, managing director of Standard & Poor's insurance ratings.

Mutual companies should be subject to a mirror Sarbanes-Oxley Act, like that being considered by the NAICC, said 59 percent of the respondents. “These executives apparently are skeptical about the management of smaller insurance companies with respect to their governance and transparency issues,” Dreyer noted.

In a discussion on the topic, Edmund Kelly, CEO of Liberty Mutual, compared the insurance and pizza industries. “Inevitably, large entities with large brands will dominate,” he said. The more information people have, the fewer decisions they want to make, he explained, which is why they will order pizza from Pizza Hut and insurance from a name-brand carrier.

“There always is a drive to grow,” said Evan Greenberg, CEO of ACE, Ltd., who predicts more merger and acquisition on the horizon, with a mixed bag of motivations and targets. “There typically is, and will always be, a certain amount of merger activity that is driven by a logic that is backed into to justify acquisitions.” This is true even in cases involving mergers that really are pursued for growth purposes, he added.

When asked which presidential candidate would be more positive for the insurance industry, respondents chose George W. Bush 78 percent to 22 percent over John Kerry. Increasing price competition is the issue that 33 percent cited as the one that most concerns them.

Other issues of concern were excessive jury awards (20 percent), rapidly rising interest rates (18 percent), increasing regulatory risks (18 percent), and terrorism (11 percent).

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Insurance Analysts Expect Increased Merger Activity

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