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Willis: Insurance M&A Activity to Increase in 2010

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Posted on 08 Sep 2009

The insurance industry will see a pick up in mergers and acquisitions (M&A) activity in 2010, according to Tony Ursano, Chief Executive Officer of Willis Capital Markets & Advisory, a unit of Willis Group Holdings, the global insurance broker. Speaking at an industry event at The Willis Building in London last week, Ursano said that the soft market is fueling the search for growth, diversification and specialization that can be achieved through M&A.

Citing the factors likely to drive future M&A activity, Ursano said that the size and scale of insurance companies was becoming increasingly important for rating agencies, investors and clients, and that M&A would satisfy the pent-up demand for liquidity from private equity owners. So far in 2009, insurance M&A volume has been light, with deals completed at an average price of 1.09 times book value. This is in contrast, he said, to specialty insurance M&A transactions that took place before the financial crisis in which the average price was 2.46 times book value.

"As markets stabilize, valuations boost confidence and acquisition financing capacity and terms improve, we expect to see a significant increase in M&A activity in the insurance space," Ursano told 375 delegates at The Insurance Insider's Pre-Monte Carlo Rendez-Vous Executive Briefing. "While the outlook is positive, we must bear in mind that more than 50 percent of insurance deals have failed to create shareholder value due to a number of factors, including difficulty assessing the profitability of the target, the cyclical nature of the insurance market and the volatility of the financing markets.

"In order for an M&A deal to be successful, it needs to be financially and strategically compelling," he said, citing Ace Limited's successful M&A strategy as an example. "Insurance companies looking to acquire should first ensure that the deal is accretive to earnings, return on equity and book value per share. There should be clear, defensible strategic logic behind the acquisition, transparency of loss reserves and committed financing upfront. It's also important that key management are given appropriate incentives to stay," he said.

Commenting on the illusive hard market, Ursano said, "We are one event away from a hard market. Profitability and returns are under tremendous pressure and there have been major investment losses and reduced investment income in the insurance world, with valuations at all-time lows; more than 50 insurance and reinsurance companies are trading at below their stated book value. Under these circumstances, a significant investment or catastrophic loss would catapult the industry into a hard market."

Ursano also predicted an increase in sidecar and cat bond activity, and an increase in ILS fund formation in 2010 fuelled by the light catastrophe losses so far this year, which could drive strong investor returns in an attractive, uncorrelated asset class. This, coupled with financial market stability, could increase hedge fund participation, he said.

Ursano was one of five speakers at the event, which focused on the reinsurance landscape one year after the start of the financial meltdown. The other speakers included Ulrich Wallin, CEO, Hannover RE; Dominic Christian, CEO - International, Aon Benfield; Peter Rogan, Partner, Ince & Co, and Mark E Watson, President & CEO, Argo Group International.

Established in March 2009, Willis Capital Markets & Advisory expands on Willis' already existing capital markets capability and is focused on advising insurance and reinsurance companies and clients on a broad array of capital markets products and mergers and acquisitions.

Willis Group Holdings Limited is a leading global insurance broker, developing and delivering professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 20,000 Associates serving clients in some 190 countries. Additional information on Willis may be found at


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