US Insurance mergers ahead
An article in Insurance Journal, ("Analysts Predict Surge in Insurance Company Mergers in 2006", 1/4/06) predicts a big uptick in mergers and acquisitions in the upcoming year, especially in the life insurance area. That's after a year with several major deals, including MetLife's buyout of Citigroup's Travelers Life & Annuity ($11.5 billion) and Lincoln National's purchase of Jefferson-Pilot ($7.5 billion). Plus General Electric getting rid of its last insurance assets. All told there were around 60 insurance deals last year, worth a total of around $40 billion. The record was set in 1988, with 190 transactions worth $82 billion, according to the article.
The reasons for the upsurge, according to article, are several:
- Low interest rates
- Excess cash available both internally and externally
- Increasing reserve cash requirements, which squeezes smaller firms
- Increased demand for life and annuity insurance
- The desire by banks (like Citigroup) to spin off their insurance businesses, having discovered the limitations of synergy
- An emerging global market
But the biggest reason, the article quotes one expert as saying, is that "The sector is highly fragmented and rife with overcapacity. We do not see how most of the smaller players can effectively compete and remain profitable in this environment." The article notes that there are 1,262 life and health insurance companies in US alone!
The article mentions four major possible sellers:
- JP Morgan Chase, possibly following Citigroup's lead in dumping its underperforming insurance assets
- Allstate, deciding to drop its life insurance and annuity assets
- AmerUs Group, an Iowa life insurer with around $1.5 billion in gross income
- Protective Life Corp., an Alabama-based life and casualty insurer ($2 billion)
Possible buyers include Prudential Corp. and Principal Financial Group, both larger companies with lots of excess capital to spend.
All of this is predictable as other financial industries, including banks, credit operations, and health insurers get bigger. Afraid of being left behind, players have to decide whether to expand or to sell out.
