October 28th, 2009

Mergers & Acquisitions Update: Third Quarter 2009

Posted at 12:30 AM ET

gc-securities-logoNorman Brown, Managing Director, GC Securities and Bart Zanelli, Managing Director, GC Securities*
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A mergers and acquisitions (M&A) trend is beginning to form in the (re)insurance industry. With capital being restored to carriers’ balance sheets, M&A is expected to accelerate next year and particularly in 2011. Both strategic and tactical opportunities are being pursued, and as some (re)insurers capitalize on them, others will follow. A podcast at the end of this article provides deeper commentary and insights into the (re)insurance M&A market.

Click here to listen to the podcast >>

m-and-a-chart

After a record year of M&A in 2003, the (re)insurance industry nearly fell silent in 2004. The number of transactions completed dropped from 42 (at a value of USD18 billion) in 2003 to 17 in 2004, with a total value of USD449 million. From 2005 through last year, the M&A market saw a growth trend emerge, ultimately reaching 59 transactions at an aggregate value of USD16.6 billion in 2008. Carriers have been busy this year, too: 40 deals have closed, with a total value of USD7.1 billion, at the end of the third quarter of 2009. And, the trend is likely to continue upward.

The restoration of capital in the (re)insurance industry will facilitate the prevailing trend. At the halfway point of 2009, the Guy Carpenter Global Reinsurance Composite showed an 8.2 percent increase in aggregate shareholders’ equity, mostly through investment and underwriting earnings. Further, the group’s cash position increased substantially — up 316 percent to USD7.9 billion. Capital and cash translate to strategic alternatives, and (re)insurers consequently have plenty of choices. In navigating the options available, many will respond to the clear competitive conditions that have arisen.

In 2010, we expect to see an increased level of both tactical and strategic M&A activity. Tactical M&A activity provides an opportunity to accelerate growth, as companies can add to top line by acquiring companies where expense synergies exist. Strategic M&A, on the other hand, provides acquirers with access to new lines of business that they might not be able to enter otherwise, as the cost to establish a sufficient operation would be disproportionately high. Excess and surplus, specialty managing general agents and other specialty lines companies are seen as quite attractive, because they fill voids in product suites or platforms — and they tend to have lower loss ratio products than standard alternatives.

Much has changed in the past 12 months. The industry has turned from coping with capital constraints and weathering the fierce conditions of the financial crisis to seeking new routes to growth. Over the next 24 months, (re)insurers may have to acquire to grow or face being acquired. Those that manage the situation appropriately will be well-positioned to take the lead in the market, deploying their capital for optimal returns.

Listen to the podcast interview below to learn more about the (re)insurance M&A market — and the trends likely to characterize it through 2010.


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Click here to download an iPod-compatible version of the interview >>
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* Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies, Inc. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.
 

 

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