In the early 1990’s, the Life insurance industry like almost all other insurance industries experience an urge to merge.
The total premiums of acquired Life insurance companies increased from USD18billion or 2% or world premium in 1994 to USD53billion or 5% of world premium in the first three quarters of 1999.
The average size of Life insurance deals double from around USD200million in 1994 to around USD400million in 1998.
Mega – mergers with acquired Life insurance premium of more than USD5billion only started after 1995.
In the first three quarters in 1999 alone, there have been four deals of this size. Notable examples cited were – Aegon’s acquisition of Transamerica and Met Life acquisition of General American.
Although the big deals account for the bulk of the acquired Life premiums, 90% of all Life measures and acquisitions, the acquired Life insurers are smaller than USD1billion.
Almost two thirds of all measures and acquisitions measured by Life premium acquired in the Life insurance industry have taken place in Europe around a quarter in North America and about 10% in the rest of the world.
Whereas, in Europe half of the premium income acquired has been cross borders, in the other regions only 10% has been international.
If Europe is regarded as a common market, the share of the cross border transactions declined to just fewer than 20%.
Europe’s companies have been net buyers of Life insurance business in North America and other Regions.
The important of Bancassurance deals was close to zero. The amount has seen risen to approximately 15% of all Life insurance deals in the first three quarters of 1999.
Although it is expected that Bancassurance will offer synergies by unifying the distribution networks by making use of cross selling opportunities, it is arguable whether the full measure is always necessary or an exploit to this business opportunities.
The main drivers of the urge to merge have been Life Insurance Company pursues of economy and scope and obtaining better access to capital and human resource. In the 90’s a number of development have amplified the impact of the driving focus.
In many countries, the deregulation and liberalization of market assets has increased competitive pressure on insurance companies.
Many clients, particularly corporate clients are shifting their preferences to bigger and seemingly more solvent insurance providers.
Due to rising stock prices and low interest rate financing take-overs has become easier.
The crash in asset values, and loans and negative spread in Japan and South Korea as well as pension mis-selling and guaranteed annuity liabilities in the UK have eroded the capital base of many insurance companies and thus, have made them take-over candidates.
Furthermore, not all measures and acquisitions seems to follow sound economic analysis but mirror the behaviour of the management and simple follow an overall trend.
There appear to be the two main strategic options for insurance companies: either to reach a certain threshold size or to focus on special niche market.
As a result, the middle segment of the market is coming under increasing pressure to restructure. This is reflected empirically in the fact that especially in the UK and the US; the top 10 – 50 Life insurance groups expanded their market share the most.
Although it may seem that there is an overall trend towards bigger conglomerates, these does not hold through for all countries.
Some countries even exhibit de-concentration. There are some doubts as to whether very big conglomerates really become more efficient as compared to slimmer competitors.
There is some evidence to suggest that mega conglomerates may suffer the diseconomies of scale. These may eventually slow the consolidation trend.
Furthermore, aside from mergers and acquisitions another phenomenon may become increasingly important.
New competitors are entering the life insurance markets and challenging existing players with innovative product more efficient or targeted distribution channels or low-cost business unhindered by legacy systems.
In Ghana for instance a new re-capitalization is being proposed under a new law for companies to abide by.
Can it work?
