S&P Conference Survey Predicts More Mergers; Confidence in Pres. Bush; Increased Price Competition

June 17, 2004

A Standard & Poor’s survey found that two-thirds of insurance executives and analysts believe the recent mergers of St. Pauls/ Travelers and John Hancock/ Manulife indicate heightened industry consolidation activity.

The survey, released in conjunction with S&P’s 20th annual insurance conference, held yesterday in NYC, was based on responses from approximately 100 executives and analysts. An overwhelming 71 percent of those surveyed said the debt and equity markets “reward the stock insurance companies for their ability to acquire other companies.”

“It is clear that the financial flexibility enjoyed by stock companies to purchase another company far outweighs the vulnerability to be acquired,” stated Steven Dreyer, managing director of Standard & Poor’s insurance ratings.

For mutual companies, 59 percent of the respondents said they should be subject to a “mirror Sarbanes-Oxley Act,” as is being considered by the National Association of Insurance Commissioners (NAIC). “These executives are apparently skeptical about the management of smaller insurance companies with respect to their governance and transparency issues,” Dreyer noted.

S&P’s survey even delved into the political arena, noting that a large majority of respondents (78 percent) felt that president Bush would be “more positive for the insurance industry,” than his Democratic opponent, John Kerry.

The cycle wasn’t neglected either. Thirty-three percent of those surveyed named increasing price competition as the issue that most concerned them. “Increasing price competition is emerging as a greater concern for the industry,” Dreyer confirmed. “This was not the case a year ago.”

The other issues of concern were excessive jury awards (20 percent), rapidly rising interest rates (18 percent), increasing regulatory risks (18 percent), and terrorism (11 percent).

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