Fighting The Urge To Merge

Fighting The Urge To Merge

When Travelers and The St. Paul Company announced their intention to combine forces late last year, questions inevitably arose as to whether this deal was merely the first of many property-casualty mega-mergers to come.

Indeed, at this months annual Joint Industry Forum in New York, a survey of the nearly 250 power brokers in attendance found that 71 percent expect more mergers and acquisitions.

However, a CEO Roundtable discussion during the forum featuring eight of the industrys top dogs had to leave anyone considering the M&A path with some serious second thoughts.

“Which mergers and acquisitions have been really successful? Its a short list,” warned Ronald Pressman, president of GE Insurance, as well as chairman, president and CEO of GE Employers Reinsurance Corp. “It might be the more intelligent path to innovate and compete and grow your core business rather than pay a premium to buy or merge with another company, with all the integration challenges to overcome.”

Edward Rust Jr., chairman and CEO of State Farm Mutual Auto Insurance, who did a fine job moderating this huge panel of industry bigs, called particular attention to the challenges posed by the technological aspects of a merger. “Your systems might not be compatible [with the M&A partner],” he said. “How do you get all the systems integrated?”

“I lived through that big time,” chimed in Catherine Rein, president and CEO of MetLife Auto and Home, recalling the woes her carrier faced in assimilating St. Pauls personal lines business in 1999. She raised another red flag about the downside of M&As as opposed to organic growththe time and energy diverted from day-to-day affairs during due diligence and the transition.

“A merger basically disrupts your entire business. It is hard to do without taking your attention from the details of competition,” she said. “It can be worth itwe believe it was. But anyone who thinks they can cordon this project off and have it not consume your time and human resources, youll soon wake up.”

On the positive side, according to Lord Peter Levene, chairman of Lloyds, “when you have a merger, its a good opportunity to start an operation over again with a clean slate.” However, “its better to be the reorganizer than the reorganizee,” acknowledged Lord Levene, who is presiding over a major revamping of how Lloyds does business.

Still, given potential land mines such as reserve problems, as well as the difficulty and cost in pulling off major deals, a seismic shift in M&A activity among the industrys behemoths is unlikely, the panelists agreed.

“I dont see any Darwinian drive toward consolidation,” said Michael McGavick, chairman, president and CEO of Safeco, which endured its own growing pains after buying American States in 1997.

“Companies go their own way,” said the man in the spotlight, Jay Fishman, chairman, president and CEO of St. Paul. “M&As will work for some, while others wont go there.” He noted, however, that there is plenty of opportunity for consolidation, pointing out that even after joining with Travelers, the combined carriers marketshare will only be 8 percent. “We are still a very fragmented industry,” he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.