As news reached investors that
Zurich Insurance would be abandoning its takeover bid for RSA, shares in the UK-based insurer tanked around 21% before closing 20.8% lower. The news was similar – though not nearly so dramatic – for
Zurich. At the end of Monday trading, the company finished 2.8% lower than it began at the outset.
Zurich cited “deterioration in the trading performance” of its general insurance business as the reason for the termination of talks with RSA, a rare occurrence in an otherwise busy season of merger and acquisition activity among insurance companies.
While opponents of the match may be breathing a sigh of relief, however, other industry observers see the collapse of the deal as emblematic.
Writing for the
Financial Times Monday, Oliver Ralph commented that “all the obvious deals have been done” this year and that transactions going forward may start to look “either expensive or strategically unsound.”
“The risk of a Zurich/RSA style collapse is higher,” Ralph wrote. “Do not assume that all heady days will be good ones.”
The days are indeed heady. The global property/casualty industry has already produced transactions worth $81 billion this year – double that of the same period in 2014. Nearly all analysts agree on the root causes, namely an influx of capital and low investment returns set to fall from 8.1% in 2014 to 6.5% this year.
And Ralph has not been the only one to decry the industry’s rush to consolidate.
While speaking to shareholders during a second-quarter earnings call in July, W.R.
Berkley Corp. Chairman and CEO William R.
Berkley told listeners that despite soft market conditions and low interest rates, the consolidation among large players in the industry is not warranted.
“Consolidation that is happening now is frequently about management ego or management rewards less than it is about what you need to run your business,” Berkley said.
W. Robert Berkley Jr., Berkley’s son and chief operating officer with the company, continued the critique, saying mergers and significant acquisitions leave carriers “distracted” from delivering true value to customers while they combat logistics and clashes of company culture.
Whether or not insurers agree with the thrust of these analyses, they can expect a slowdown in M&A activities as the year enters its final quarter. Scarcity value has left just a few potential targets left for acquirers, all with high prices attached.
“The higher valuations go in the sector, the fewer the potential suitors that could justify a deal,” said
Wall Street Journal writer Paul J. Davies. “Investors in the remaining Lloyd’s groups may have let the richest deals go to their heads.”
