Conning: Bigger Dollars, Fewer Insurance Industry M&As

April 21, 2004

Mergers and acquisitions in 2003 and 2004 in the insurance industry reached the highest level since 1998 in dollar terms, even while the total number of transactions continued its long decline since the same year, according to a study by Conning Research & Consulting, Inc. out of Hartford, Ct.

The study, “Mergers & Acquisitions and Public Equity Offerings, 2004 Edition,” found that total transactions declined by almost 7 percent, while transaction value increased by more than 600 percent due to a late-year flurry of insurance-related deals that ranked among the ten largest mergers in the world, totaling $43.6 billion. There was one mega-merger from each of the three major insurance sectors. The $59.9 billion industry total in 2003 was six times the total in 2002 and the second-largest value behind $165.4 billion in 1998.

“While the M&A hyperactivity of the late 1990’s did not spur substantive consolidation in the P&C and life industries, the current environment appears more conducive to growth through acquisitions,” said Clint Harris, a Conning Research analyst and the report’s author. “In fact, we have identified some key indications that M&A activity is likely to increase in 2004 for these and other sectors.”

Continuing its decade-long issuance of analysis of M&A and public stock offerings in the industry’s five traditional sectors — property-casualty (P-C), life, health/managed care, distribution, and insurance services — the Conning Research study found most trends of the prior two years continued through 2003 in all sectors. P/C and life insurers focused on seller- motivated sales of business units. Consolidation drove the health and distribution sectors, and the services sector continued in a relatively depressed state since the technology bubble burst.

“We expect that 2004 will present a change in industry transactions from what we have seen over the past few years,” said Stephan Christiansen, director of research for Conning Research. “As the industry’s performance picks up, transactions will move from defensive and opportunistic to growth-seeking in their goals. Insurers will seek to repeat their 2003 performances this year, but they will be hard-pressed to do so organically. That is why we expect 2004, despite the lack of current pipeline, to finish with strong momentum for M&A.”

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