Opinions vary on future property/casualty mergers and acquisitions activity
Reprints
Opinions vary whether the property/casualty industry is poised for consolidation.
A March report by Deloitte L.L.P., “Top 10 Issues for Insurance M&A in 2013: Time for Mergers and Acquisitions to Take Off?” said market and economic conditions are favorable for deals.
“Entering 2013, the environment seems more conducive to accelerating M&A activity than a year ago: Organic growth opportunities appear limited; insurance companies and private equity firms are holding large amounts of excess capital that need to be deployed; and the stock market is doing well overall, which generates confidence,” the report states.
However, John L. Ward, Cincinnati-based CEO of private equity firm Cincinnatus Partners L.L.C., said successful M&As need to be a strategic fit.
“I don't see that there is a compelling reason for a lot of M&A activity,” Mr. Ward said.
Meyer Shields, Baltimore-based managing director-equity re-search, property/casualty insurance for Keefe, Bruyette & Woods Inc., said that while deals often work out well for the company being acquired and for the industry, the results for the company doing the buying are less certain.
“At the risk of generalizing, these deals can be bad for the acquirer,” Mr. Shields said.
One reason is that economies of scale are harder to achieve for commercial lines insurers than in more homogenized lines such as personal lines auto. “If you are in personal lines auto, scale helps, but if you are a top 10 insurer in specialty or commercial lines, I don't see much indication that economies of scale help,” Mr. Shields said. “You are bigger but not necessarily better. You still have to underwrite every policy.”
Read Next
-
Rate increases, stronger economy improve property/casualty insurer outlook
Incremental rate increases and a modestly improving economy offset catastrophe losses and weak investment returns as most of the largest U.S. commercial property/casualty insurers posted profits for 2012.
