Merger and acquisition activity for the insurance industry should increase in the next 12-18 months, particularly in the property-casualty, distribution and service sectors, a consulting firm reported.
That analysis came from Conning Research and Consulting, Hartford, Conn.
Globalization plays more of a role in merger and acquisition activity for property-casualty insurers than for life and health insurers, according to the Conning study. It impacted five of 10 p-c transactions, one of 10 life transactions, and no health transactions.
In the life segment of the insurance industry, the number of transactions increased slightly to 23 in 2006 compared with 21 in 2005, according to Clint Harris, a Conning vice president. The 2006 total is below the 10-year average of 30 life transactions, he noted.
In 2006, the dollar value of these transactions was roughly $5 billion compared with $21.8 billion in 2005, Mr. Harris said. The reason for the large difference, he explained, is because 2005 included the Met Life-Travelers Life & Annuity and the Lincoln National-Jefferson-Pilot transactions. Conning includes transactions in the year they are announced, not completed, he continued.
For the insurance industry as a whole, the number of transactions increased to approximately 400 in 2006 from over 300 in 2005, according to the report, "Mergers & Acquisitions and Public Equity Offerings-2007 edition."
Part of that increase was driven by mergers and acquisitions in the brokerage segment of the insurance industry, the report found.
The number of distribution M&A transactions grew to 246 in 2006 from 180 in 2005. While bank distribution M&A declined to 25 percent in 2006 from 28 percent in 2005, agencies purchasing other agencies grew to 62 percent in 2006 compared with 51 percent in 2005, according to the report.
The recent activity is not fundamentally affecting the industry's competitive landscape, although there are changes in the M&A environment, including the build-up of capital and the use of M&A for diversification, that will affect the insurance industry, Mr. Harris said.
Describing the M&A activity, he said there is no indication that it will cause shifts in strength among companies, although much of the activity centers on "scale building." Consolidation remains relatively stable, he suggested.
Divestment and focusing on "core competencies" has been a major reason for diversification, according to Mr. Harris. However, going forward, more M&A activity will also reflect the need to diversify business lines, he added.
While private equity is playing more of a role in M&A activity, there is a limit to the role that it will play because it can involve the use of debt which is reflected in ratings issued by rating agencies, Mr. Harris said.
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