For an industry whose operations are based on conservative, plodding, risk-based approaches, the insurance sector has recently shown surprising spontaneity in mergers and acquisitions.
In the space of three days last week, nearly $90bn (£58bn) of deals were announced in arguably one of the most significant waves of consolidation that any sector has seen.
Willis Group, the New York-listed, Irish-domiciled insurance group, kicked off the spree last Wednesday by announcing it had agreed an $18bn “merger of equals” with rival Towers Watson. The merger will create the third-largest insurance and reinsurance broker in the world, with 33m members and annual revenues of $115bn.
The next day, Switzerland’s ACE agreed to buy rival Chubb, the property insurer of choice for the well-heeled, for $28.3bn. The deal was driven by ACE’s desire to increase its access to rich clients prepared to pay higher premiums at a time when insurers’ margins are under heavy pressure.
Aetna, one of the biggest healthcare insurers in the US, then struck a $37bn cash-and-shares deal for Humana, its smaller rival, before Centene rounded off a bumper week with a $6.8bn swoop on Health Net.
The total insurance M&A figures would have been even higher, at well over $100bn, if Anthem had succeeded in its pursuit of rival Cigna. Anthem has already had one offer of $47bn in cash and shares rebuffed, but is understood to be still stalking its prey.
Industry analysts and bankers say these are just the latest examples of the fast-growing trend for increasing consolidation in the global insurance sector, particularly in the non-life industry. In the recent past, there has been a joining of forces: HCC & Tokio Marine; Brit Insurance and Fairfax; Catlin and XL; and Montpelier Re and Endurance. Exor and Axis are still locked in a battle over Partner RE.
Much of the consolidation activity among the big US insurers is being driven by President Obama’s Affordable Care Act healthcare reform, “Obamacare”, which was introduced in 2013. The reforms not only extended health insurance to an estimated 17m Americans, but have also encouraged insurers to increase their scale in a bid to boost their negotiating powers with large care providers and drugs firms.
Globally, the sector is also facing a sharp need to reduce costs and increase scale at a time of low interest rates, a softening environment for renewal rates on premiums, and low investment yields.
Lloyds insurers
With this rash of deal-making under way, speculation is rising that some of the best-known London-quoted Lloyds insurers could be vulnerable to takeover. Eamonn Flanagan, a top-rated insurance analyst at Shore Capital, believes Amlin, which is trading at a discount to its peers, Lancashire, Novae and even RSA, now headed by former British Land and RBS chief Stephen Hester, could be at risk of “predatory attention”. He also said that Beazley, a specialty insurer, and Hiscox could be vulnerable but “will not go cheaply”.
Whether more consolidation takes places, this wave of “mega deals” will have a wide-ranging impact on a host of industries, not least of which is property. Insurers are arguably one of the most important employers in the City and from an occupational point of view have helped to kick-start some of the most significant developments of the past few decades.
Land Securities and Canary Wharf owe much of the success of their letting programme at the Walkie Talkie, EC3, to insurers such as RSA, Markel and Kiln. Aon was an anchor tenant for British Land’s and Oxford Properties’ Cheesegrater, EC3, while the Willis Building, EC3, was a result of a prelet by the eponymous insurer.
The continued prosperity of insurers is vital for the City. When Sir John Ritblat, former chief executive of British Land, topped out the Willis Building 10 years ago, he said: “Some people look at the structure and all they see is metal. I look at it and I see a great building that will not only contribute to this vibrant area and city, but also to the changing nature of the global insurance industry.”
Deirdre Hipwell, mergers and acquisitions correspondent, The Times
