Desire to Secure Products and Channels Drives Recent Insurance Deals

Canadian insurer Manulife Financial Corp.’s recent $10.4 billion acquisition of John Hancock Financial Services Inc. illustrates the growing desire among insurance firms to beef up their product portfolios and secure distribution channels in order to drive future growth. This deal was one of a small cluster of insurance acquisitions announced in recent months. Earlier in September, AXA Financial Inc., a unit of French insurance giant AXA SA shelled out $1.5 billion for MONY Group Inc. and BANK ONE Corp. acquired the life insurance, annuity, and underwriting businesses of Zurich Life from Zurich Financial Services Group of Switzerland for an estimated $500 million in cash. International flavor is a coincidence Although deregulation of the global financial services industry several years ago has led to merger activity – both within individual countries and across borders – the international flavor of the recently announced deals, experts say, may simply be a coincidence. “Many insurance companies believe that the battlefield is national,” says Vicky Bindra, a Vice President in Bain & Co.’s New York office and a member of the firm’s North American financial services practice. “There are few synergies, if any, between Canada and the U.S., for example. Although some companies do have an international footprint, I think that’s more by the way’ than something that is being targeted,” he adds. Manulife bought John Hancock, Bindra thinks, not so much to gain a foothold in the U.S. but to ensure leadership in its home market, whereas many industry analysts believe that the U.S. market was Manulife’s main focus. Agreeing with Bindra, Brian Davis, a Partner at Torys LLP, a U.S.-Canadian law firm which was lead counsel for Manulife in the John Hancock deal, says, “I think it’s more the case that it was a good opportunity as opposed to there being a real cross-border drive to it. For Manulife, there was a strong desire to see growth in its overall platform, and the U.S. has been the key element in many respects in its successful growth.” Adding weight to those claims are results of a recent KPMG LLP survey of more than 100 senior insurance executives. Only 15% of respondents believe that international financial services companies will be their major competitors over the next three to five years, as opposed to 53% who thought that in 2000, notes Fred Donner, industry sector leader for KPMG’s insurance practice. The executives expect domestic insurance companies to be their toughest rivals in coming years. With two of the recent insurance deals topping the billion-dollar mark, it seems that the sluggish m&a market is coming to life, but industry followers disagree about the outlook for more big deals in the near future. John Nigh, head of the m&a practice at Tillinghast-Towers Perrin, says he wouldn’t be surprised to see a Manulife/John Hancock type of deal – priced at $1 billion or more – being announced each month for the next year or so. Other experts are not so optimistic, and believe that restrained demand more likely is driving recent deals, and that the timing of the large insurance deals is purely coincidental. Pent-up demand drives deals “It just may be a bit of pent-up demand,” says Peter Roth, head of the insurance m&a practice at Keefe, Bruyette & Woods. “Hancock and MONY had been looking at strategic alternatives for some time. And the pickup in deals may be attributed to the fact that sellers’ expectations are more realistic now.” Although insurance companies with product portfolio gaps, poor management, or outdated systems are finding it difficult to remain competitive – and some are expected to use m&a to remedy those problems – it may take time to see whether the recently announced acquisitions are the start of a new wave of consolidation in the life insurance industry. Copyright 2003 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com