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Poor economic conditions,
high claims, low returns blamed for many mergers
BY FRANK NORTON
Of The Post and Courier Staff
The insurance industry is again consolidating, fueled by a rebound in stock values and companies' need to keep costs low after several years of heavy claims payouts.
Year to date, the industry has seen about 210 mergers, a slight increase from the previous two years when consolidation activity was relatively scarce, according to WFG Capital Advisors, a Harrisburg, Pa.-based investment bank that tracks mergers in the industry.
WFG principal Steve Wevedau said higher investment returns and the raising of insurance premiums this year have revived revenue growth for many in the industry and helped create more lucrative acquisition targets for financial companies.
Recent
examples include an announcement by BB&T Insurance Services -- a subsidiary of regional bank BB&T Corp. -- of plans to buy privately held McGriff Seibels & Williams Inc. for $354 million. The cash and stock deal would create the nation's sixth-largest insurance broker.
A few days later, Travelers Property Casualty Corp. announced plans to combine with St. Paul Cos. in a $16.5 billion stock deal that would create the nation's second-largest business insurer, with $107 billion in assets.
Industry analysts say sizable deals may spur further consolidation among smaller players, especially as the low investment returns, high claims payouts and generally poor economic conditions of the past few years continue to take a toll on the industry.
Small insurance brokers could be at greatest risk of getting swallowed up, analysts say, since they lack the scale that helps larger companies compete in the distribution of products, said Wevodau.
As a result, banks and other financial companies, includ- ing many in the Southeast, arecreasingly looking to acquire brokerages and other operations as a way to increase their fee income.
BB&T is the biggest recent example, but many smaller competitors are also looking to increase market share through distribution.
Last week, Columbia-based Seibels Bruce Group announced it was buying a 20 percent stake in a Florida-based holding company for homeowners insurers operating in that state.
Earlier this year, First Financial Holdings of Charleston bought Colombia-based Woodruff and Co., one of many insurance acquisitions meant to beef up First Financial's insurance division.
Speaking at an investor conference last month, First Financial CEO Thomas Hood said the Charleston-based thrift holding company will continue to explore options to expand its insurance operation through acquisition.
First Financial, the third-largest financial institution headquartered in South Carolina, owns First Federal Savings and Loan Association and the First Southeast financial services family, which sells insurance, brokerage and trust services mostly to the 55-and-over crowd.
The division had revenues of $13.7 million in fiscal 2003, with 44 percent coming from personal lines and 56 percent from commercial lines.
"The entire economy had been in (merger and acquisition) purgatory for the past couple of years and suddenly we had several large deals," said Robert Hartwig, chief economist with the Insurance Information Institute.
He said the increased activity is a sign of economic recovery and should pick up over the next two years if improvement continues.
"It's not going to be the mania of the late '90s, but I think we will see more than we have over the past couple of years," he said.
Frank Norton covers banking and legislative issues. He can be reached at 843-937-5594 or fnorton@postandcourier.com.
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