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Business Insurance
By Roberto Ceniceros
October 04, 2004
2004 NAPSLO Annual Convention
ORLANDO, FL - Commercial property/casualty insurance brokers, along with banks, are increasingly interested in acquiring employee benefits distributors, according to two investment bankers.
Property/casualty operations will continue to account for the majority of brokers' merger and acquisition targets, the two managing principals at WFG Capital Advisors L.P. in Harrisburg, Pa., told attendees of the recent annual convention of the National Assn. of Professional Surplus Lines Offices Ltd. in Orlando, Fla.
However, brokers know that rising health insurance costs mean increased premium volume from employee benefits product sales, which is fueling their interest in increasing their benefits distribution capabilities, said WFG's Steven S. Wevodau.
Property/casualty brokers also realize that premiums coming from employee benefits are less volatile than those derived from property/ casualty lines, he said.
''Three years ago, commercial retail and commercial wholesale (brokers) were at the top of the list of many distributors and their acquisition strategy,'' Mr. Wevodau said. ''There is still a level of interest, but the heightened interest is actually in the benefits product line.''
Additionally, some banks that previously viewed property/casualty products as having good potential for cross-selling to their customers now see benefits as an easier way to broaden their product offerings, said Robert J. Lieblein, also of WFG.
''That is a dynamic that has changed over the last 12 months, and you will continue to see that change-that is, a renewed and tightening emphasis on well-run employee benefits operations,'' Mr. Lieblein said.
Overall, bank acquisitions of insurance brokerages have slowed as some smaller banks have saturated their markets and larger banks are busy assimilating earlier acquisitions, the speakers said. But bank interest in insurance brokerages will accelerate again, they predicted.
''While the trend right now is slowing down from the banking standpoint, it's going to pick up again,'' Mr. Lieblein said. ''The trend is going to change. Over the next 18 to 24 months, you will see banks continue to acquire more.''
There were 182 announced insurance brokerage acquisitions in 2003, Mr. Lieblein said, noting that property/casualty brokerages accounted for 67% of those transactions. Employee benefits operations made up 13%, life and health accounted for 7% and the remainder involved other types of operations.
In addition, he noted that 156 of the deals-or about 85%-involved retail brokerages, while the rest were wholesale operations. This year, there had been 120 deals as of June 30, so the total number for the year could outpace 2003 by about 35%.
It is still too early to tell how the acquisition of employee benefits operations will affect broader trends in broker consolidation, Mr. Wevodau said. ''But our sense is that it should begin to have some form of impact over the next six to 12 months,'' he added.
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