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U.S. insurance merger and acquisition activities last year were the lowest since 2002, but a pickup is already underway, fueled by pent-up demand, Conning Research & Consulting reported.

The Hartford, Conn.-based firm said overall global transaction values also declined to 601 with reported total value of $52.4 billion compared with 766 with a value of $55.2 billion in 2008.

Companies' merger and acquisition activity in 2009 "was dominated by distress deals made of necessity and by defensively driven combinations" to achieve scale to reduce expenses, rather than the traditional desire for geographic growth and product expansion, Conning reported.

At the same time, merger activity in the insurance industry outside the U.S. increased significantly, primarily due to larger transactions in the life/annuity and health sectors, Conning analysts said.

But, non-U.S. property and casualty insurance merger and acquisition activity declined for the second straight year.

"In the U.S., the value of insurance industry transactions was the lowest we have reported since 2002," said Conning analyst Jerry Theodorou in a statement released with the report.

"The property and casualty sector dropped 78 percent last year, while U.S. life-annuity marked its second year below $1 billion in M&A values, and health insurance also dipped below $1 billion," Mr. Theodorou said.

Total announced global property and casualty insurance M&A volume decreased from $30.3 billion in 2008 to $15 billion last year. The number of transactions increased from 139 to 158.

The reason for 2009 showing lower aggregate announced global p&c M&A value, but a higher transaction count, was that there were more, lower priced transactions, compared to 2008. In 2008 there were several mega-p&c transactions which tended to push up the overall value. This did not occur in 2009, Mr. Theodorou explained..

Conning mentioned that the distress sale nature behind the biggest deals was demonstrated by American International Group's sale of auto insurer 21st Century to Farmers for $1.9 billion impelled by AIG's need to repay its vast bailout debt to the government.

Insurance services posted the only increase in values year over year and represented more than half of the total transaction value for the industry, the report said.

The increase in non-U.S. M&A transaction values was 58 percent, according to the report.

Stephan Christiansen, Conning research director, said, "Looking forward, we are already seeing that pent-up demand is driving increased M&A activity in most sectors of the insurance market, as economic and credit conditions improve and valuations rise again to more normal levels."

The Conning Research & Consulting report, "Global Insurance Mergers & Acquisitions in 2009," costs $1,750. Buyers can call (888) 707-1177 or use the company Web site (http://www.conningresearch.com/).

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