M&A SETTING RECORDS; NUMBER, VALUE OF INSURANCE INDUSTRY DEALS SOARING: STUDY

The number of insurance industry mergers and acquisitions reached 263 in the first half of this year, up 32.2% from 1997's first half, according to a new study.

The total value of those transactions, based on the values of individual deals at the time they were announced, is $134.7 billion, according to Hartford, Conn.-based Conning & Co. That figure dwarfs the $20.8 billion value of insurance deals announced during the same period of 1997.

Indeed, two deals by themselves surpassed the first-half 1997 value: Travelers Group Inc./Citicorp, which was valued at $70 billion at the time of announcement and valued at $74 billion at the Oct. 8 close of the deal; and Berkshire Hathaway Inc./General Re Corp., valued at about $21.4 billion at the time of announcement, the Conning report points out. Even without these two deals, the value of the remaining mergers and acquisitions during this year's first half was 109% above 1997's first half.

"Transaction values at the top continue to get larger," the report states.

The surging value of the deals shows that "gigantic companies are looking to be larger for a number of reasons," said Nancy Carini, a Conning vp.

Conning reiterates a projection made in an earlier 1998 study that the number of transactions for the full year "will easily eclipse the 1997 record of 432 transactions."

However, the recent stock market volatility could affect the merger and acquisition climate, Ms. Carini said. Part of the aggressiveness of the merger and acquisition trend can be attributed to companies' high stock values. But when share values decline, companies may be less able to fund stock deals. The stock market volatility also could trigger hostile takeover attempts if a target company's stock value has dropped, Ms. Carini said.

For the rest of the year, the merger and acquisition pace "may not accelerate as dynamically as it has the last two quarters," she said. But the factors driving the various insurance industry sectors to enter into these deals do not change overnight, so the transactions will continue, Ms. Carini said.

Companies become interested in mergers and acquisitions to improve their abilities to implement various strategies. Those strategies include cutting expenses; refocusing business on certain lines; providing more value to customers through additional customer services, tailored policies, etc.; reaching a broader customer base; and expanding abroad, the report explains.

The increases in the number and value of mergers and acquisitions were found in all insurance industry sectors that Conning studied except health/managed care.

In the property/casualty sector, 59 deals were announced in the first half of this year, 20.4% more than the same period last year. The value of the 1998 deals was $48.2 billion, up 504% from 1997's first half. If the Berkshire Hathaway/Gen Re deal were excluded, the value of the transactions still would be 236% over the same period last year, the report states. Of the 59 transactions, 21 of them involved foreign companies.

Conning broadened what its previous studies referred to as the "agent/broker sector" to what is now called the "distribution sector," encompassing any deals prompted by the desire to expand distribution channels. The report places the Travelers/Citicorp merger, for example, in the distribution sector. There were 76 deals among agents and brokers and other types of distribution companies in this sector, up 31% from the first half of last year. The value of the deals was $76.3 billion in the first half of this year, compared with $2.2 billion in the same period last year.

In the life insurance sector, there were 23 deals in this year's first half, 15% more than 1997's first half. The value of the transactions was just over $7 billion, up 40.3%.

The number of transactions in the health/managed care sector dropped 5.7% to 33, and the value of the transactions declined 51.8% to $2.3 billion during this year's first half.

Political and legislative changes are making it tougher for these companies to improve their bottom lines, Ms. Carini said. "As a result, it's a tough time for them to be in the business of growing."

Copies of Conning's "Mergers & Acquisitions and Public Equity Offerings, Mid-Year 1998 Review" are available for $550 by calling 860-520-1521.