With a soft market making it more difficult to compete, and the economy contracting, it was only a matter of time before consolidation started heating up in the property-casualty industry, and 2008 saw more than its share of major deals.

For one, there was Liberty Mutual's purchase of Safeco, announced in April, with a $6.2 billion price tag. Safeco became part of Liberty's Agency Markets unit, with the combined entity represented by some 15,000 independent agents nationwide.

The merger was hailed by agent groups, but rating agencies reacted skeptically, raising concerns about the burden that debt financing would place on Liberty's capital adequacy. Even before the subprime crisis exploded, Fitch Ratings said Liberty might have a hard time raising capital in an already challenging credit market.

The acquisition received regulatory approval in September, but within a week, Standard & Poor's lowered Liberty's financial strength rating from “A” to “A-minus”–a move the carrier decried as “a disservice to Liberty Mutual and our policyholders.”

In June, Willis Group Holdings announced it would buy Hilb Rogal & Hobbs Company in a $2.1 billion deal that Willis predicted would “double Willis's North America revenues and strengthen its leadership in attractive growth markets.”

The takeover, completed in early October, created Willis HRH–increasing the North American footprint for the London-based Willis from 70 locations to 210.

In July, Tokio Marine Holdings announced it would acquire Philadelphia Consolidated Holding Corp.–a specialty insurer with 47 offices and about 1,400 employees–for $4.7 billion. The deal, which closed earlier this month, was the biggest in Tokio Marine's history.

Also in July, Bermuda-based Allied World Assurance Company Holdings agreed to buy Darwin Professional Underwriters, a U.S. specialty insurer, for $550 million. The deal was completed in October.

In August, Aon announced it would buy Benfield Group for $1.75 billion, while assuming another $170 million for the reinsurance brokerage's debt. Again, rating agency reaction was mixed, with concerns expressed about the deal's effect on Aon's liquidity, as well as how the two firms might be integrated.

However, when the deal closed late last month, the final sales price turned out to be only $1.4 billion–down $350 million because of the rise in the value of the dollar in the interim. And on Nov. 20, Standard & Poor's affirmed its debt ratings on Aon Corp. and removed the company from Credit Watch, saying it was satisfied the Aon deal to buy Benfield would work.

Early on, there were rumors that Marsh & McLennan Companies was planning to make a counteroffer to take over Benfield, but MMC denied the report, and nothing more came of it.

In October, Well Fargo announced it was buying Wachovia Corp. for some $15 billion, which would put the combined company on track to become perhaps the fourth-biggest U.S. insurance brokerage. The deal was fast-tracked by the Federal Reserve.

Looking ahead, balance sheet pressures and a shrinking economy will no doubt give other insurance organizations the urge to merge–most especially among struggling independent agencies.

However, with more troubled firms on the market in these tough times, and with revenue streams drying up and undermining top- and bottom-line growth, prices are likely to fall for those looking to sell.

In addition, the fact that the credit markets remain so tight will make deals harder to finance, merger and acquisition experts warn.

Those who don't sell will certainly look to cut costs in what has increasingly become a margin business. As a result, more workers might be laid off and additional functions outsourced, both on- and offshore.

The message going out to most people still lucky enough to be employed these days is that times are brutal, be happy you have a job, and get back to work.

Special Reports /

#7: Insurers, Brokers Feel The Urge To Merge

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