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Conning: Distributors Still Buying Distributors

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NU Online News Service, April 19, 11:28 a.m. – Last year was a slow year for insurance-related mergers and acquisitions, but it was a pretty good year for distribution M&A deals and for insurance-related initial public offerings, according to a new study by Conning & Company, Hartford.

The investment banking firm found that the number of insurance-related M&A deals increased to 300 in 2001, from 295 in 2000, but the value fell to $41.5 billion, from $56 billion.

Eight of the 10 biggest deals were life deals, and two were health insurance or managed care deals. None was a property-casualty deal.

Although the deals with the biggest dollar value tended to involve insurers and managed care companies, acquisitions of insurance distributors accounted for the largest number of announced deals. Many of the transactions involved distributors trying to grow by buying other distributors, Conning says.

Many analysts predicted a surge in insurance M&A activity following the Travelers/Citicorp merger in 1998 and the passage of the Gramm-Leach-Bliley Financial Services Modernization Act in 1999. Instead, insurance M&A activity has declined, Conning says. Conning speculates that concerns about finding the kinds of hidden problems that destroyed Enron Corp., Houston, could slow insurance M&A activity even more.

The insurance IPO market was much livelier in 2001 than the insurance M&A market.

Insurers launched nine IPOs in 2001 with a total value of $9.1 billion, up from three IPOs and $5 billion in value in 2001. Three large demutualizations–of Principal Financial Group Inc., Des Moines, Iowa; The Phoenix Companies Inc., Hartford; and Prudential Financial Inc., Newark, N.J.–accounted for $6 billion of the 2001 total, Conning says.