Life insurance consolidation

No. 6/1999

Life insurance: Will the urge to merge continue?

An in-depth analysis of the global development in the life insurance industry is provided in the study "Life insurance: Will the urge to merge continue?". It identifies the major trends and drivers of the current wave of mergers and acquisitions in the life insurance industry and discusses the implications for the corporate landscape.

The study highlights the six most important characteristics of the latest wave of mergers and acquisitions:

The number of mergers is increasing worldwide. Whereas the total premiums of acquired life insurance companies amounted to USD 18bn or 2% of world premiums in 1994, the figure had increased to USD 53bn or 5% of world premiums in the first three quarters of 1999 alone.
The number of mega-mergers has increased dramatically and these deals dominate today's merger activity. Although, prior to 1996, none of the mergers in the life insurance industry had involved premium volume of more than USD 5bn, in the first three quarters of 1999 alone, there were already four deals of this size; these deals alone have accounted for 50% of the acquired life insurance premiums in the current year.
Between January 1994 and September 1999 European companies bought almost two-thirds of all acquired life insurance premiums, North American companies a quarter and companies in the rest of the world about one-tenth. The four most active acquirers were Aegon, Allianz, Axa and Generali.
Almost half the acquisitions made in Europe between January 1994 and September 1999 were cross-border. If Europe is regarded as a common market, the share of cross-border transactions declines to just under 20%. In North America and other parts of the world only 10% of the deals have been international.
The importance of bancassurance deals has grown. The share of mergers between banks and life insurers rose from virtually zero in 1994 to 15% in the first three quarters of 1999.
The urge to merge has increased global concentration in the life insurance industry. The world market share of the top 20 life insurance groups (excluding Japan) increased from 33% in 1994 to 37% in 1999.

The main drivers of the latest wave of mergers and acquisitions have been life insurance companies' pursuit of economies of scale and scope and obtaining better access to capital and human resources. In many countries the deregulation and liberalisation of market access has speeded up the trend as has the fact that many clients are shifting their preferences towards bigger and more solvent insurance providers as well as more favourable financing costs. Furthermore, many Asian life insurers are suffering from an eroded capital base, which has made them prime takeover candidates.

There are two main strategic options for insurance companies; either to reach a certain threshold size or to focus on special niche markets. As a result, companies in the middle segment of the market have often assumed the role of acquirers. This is illustrated particularly clearly in the UK and the US, where the top 10 to 50 life insurance groups have expanded their market share the most.

In the short to medium term the factors driving the urge to merge will remain in place, although in the long term, the consolidation trend is expected to slow down. Even today mergers and acquisitions are rarely received with shareholder enthusiasm. Empirical studies show that mega-conglomerates often suffer from diseconomies of scale. Furthermore, new competitors are entering the life insurance markets and challenging existing players with innovative products, targeted distribution channels and low-cost business.

This publication can be downloaded in English, German, Spanish, Italian and French.

Download "Life insurance: Will the urge to merge continue?"
Download "Lebensversicherungswirtschaft: Rollt die Fusionswelle weiter?"
Download "El seguro de vida: ¿Seguirá en marcha la ola de fusiones?"
Download "Ramo vita: l'ondata di fusioni continuerà?"
Download "Assurance vie: la vague de fusions va-t-elle déferler de plus belle?"

For further questions and copies of Chinese or Japanese versions, please contact sigma@swissre.com.