“It’s a shockwave through the property and casualty insurance industry,” says Marc Eagan, president of Eagan Insurance
Agency in Metairie, La. Eagan and thousands of other producers appointed with the two companies are concerned about the effects a smaller marketplace may have on their businesses.
Culture clashes, interruptions in service and changes in pricing are all possible consequences of the acquisition, and in an environment of fierce competition for client business, such transactions are regarded with pointed skepticism.
Producers have had plenty of fodder for such rumination. Including the ACE/Chubb deal in July, no fewer than seven transactions transactions worth more than $1 billion were either announced or completed in the past three months, and analysts suggest the P&C industry hasn’t seen the end of this rash of consolidation.
The string of mergers and acquisitions began in May, when Chinese juggernaut Fosun International announced that it would pay $1.84 billion to acquire growing insurer Ironshore. A $4.8 billion deal between Catlin and XL Group followed shortly after, and HCC Specialty made headlines in June by agreeing to a $7.5 billion takeover offer from Tokio Marine.
In July, Zurich announced it was considering an $8 billion acquisition of RSA Group in London, while Exor opened talks
with PartnerRe for a $6.7 billion deal. Analysts say soft market conditions and continued low interest rates make consolidation an appealing option for insurers, and that industry observers should expect many more before the year is through.
“[There is] a significant merger-andacquisition trend in the insurance space that we expect to persist,” FBR Capital Markets analyst Randy Binner wrote recently. “Excess global liquidity and low interest rates are the drivers of the M&A trend, and as long as this environment persists, we believe insurers could be pressured to buy properties where
rates are higher, or merge in an attempt to gain scale.”
However, many believe producers are incorrect in anticipating significant changes as a result of recent consolidation.
“I don’t think you’ll see any of these transactions move the needle at all,” says Tim Cunningham, a longtime insurance
veteran and founder of agency consulting firm OPTIS Partners. “I would advise clients to read the tea leaves – things will be different following a merger or acquisition, but I don’t think you need to be panicking.”
Cunningham stresses that the sheer size of the property/casualty industry ensures that price hikes are not in the offing, unlike in the rapidly shrinking employee benefits space.
“There is still a lot of market capacity, and there’s always someone – some other player – who will step up if there’s a void created,” he says.
Still, the world of P&C insurance distribution has not been entirely unaffected. Consolidation has also been rife among
some of the industry’s largest brokers.
In July, Willis Group announced it would merge with professional services firm Towers Watson in a deal valued at $18 billion. The new entity, called Willis Towers Watson, is expected to bring in revenues of $8.2 billion while generating
savings of $100 to $125 million within three years. Combined, the new firm will employ more than 39,000 workers in 120 countries and will join Willis’ risk management services with Towers Watson’s analytics expertise.
According to John Tiene, CEO of the East Coast-based Agency Network Exchange, such deals should send an important message to smaller independent agencies on how to survive in an increasingly competitive environment.
“The Willises of the world are only going to get bigger and continue to crowd out mid-sized agencies that have historically
made up the bulk of the market,” Tiene says. “That really just reinforces the need for insurance agents to start thinking about joining an organization that gives them some of the similar scale and access that Willis and others have.”
By joining agency networks and aggregators, Tiene says producers can gain access to larger carriers and more advanced technological capabilities without sacrificing size and efficiency.
“The challenge with the bigger, conglomerate brokers is that they haven’t taken time to become efficient organizations,” he says. “Many of their clients feel lost within the labyrinth of a mega broker, and that affords a great opportunity for smaller agencies to take their business by being nimble and providing the kind of service clients want, with the access and influence of a larger organization.”
Growth, of course, cannot continue indefinitely, and analysts say that the recent ‘feeding frenzy’ in the P&C space has its
limits. Most of the major acquirers, Binner noted, “have their deals now, so the pool of buyers is dwindling.
The news that ACE had offered a recordbreaking $28.3 billion to acquire rival Chubb traveled fast. The deal, which was completed in a matter of days, joined together two carriers with large books of personal lines business and a heavy reliance on the independent agent channel. It was also almost completely unexpected.