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Big merger is 'business as usual'; Analysts unruffled by Aegon move, call it pattern for industry


Aegon's NV's surprise acquisition of Transamerica Corp. yesterday ranks as the second-largest insurance deal ever, but analysts greeted it with a yawn.

The industry has been blitzed by a series of huge deals over the last two years as insurance companies have linked up to fight for market share against banks and financial services companies.

"It is just business as usual," said Ira L. Zuckerman, an insurance analyst at Nutmeg Securities, a Westport, Conn.-based investment banking firm. "It is continuing in the United States, and it is continuing in Europe. People will buy what they can buy."

A dozen insurance companies have merged this year in deals valued at $18.1 billion, according to SNL Securities L.L.C., a Charlottesville, Va.-based financial research and publishing firm.

Last year, a record 174 life and health, and property and casualty companies merged in transactions worth $71.8 billion. The year before, 162 companies merged in deals worth $26 billion.

The largest transaction between two insurance companies was American International Group Inc.'s $18.2 billion acquisition of Sun- America Inc. last August.

The size of Aegon's acquisition pales in comparison with AIG's transaction, but the Netherlands-based insurer picks up $58.5 billion in assets, the widely known Transamerica name and a larger share of Canada's insurance market. It also becomes a leader in long-term-care insurance in the United States and the second-largest life reinsurance company.

"It is larger but is not really anything new," Zuckerman said.

The surge in mergers and acquisitions among insurance companies is being driven by cutthroat competition, a slumping insurance market that offers little in the way of revenue growth, and the need to become larger and compete globally, experts said.

"Bigger is better," said Diana P. Wehrly, an insurance analyst at Richmond, Va.-based First Union Capital Markets. "Economies of scale come into play very much. It is really driven by how efficient you are."

Size was a main reason that Baltimore-based USF&G; Corp. was sold to St. Paul Cos. of Minnesota in 1998. USF&G; was too large to become a niche company and too small to compete globally.

The insurance business is also ripe for consolidation because it has been protected by strict regulatory oversight and has grown inefficient, analysts said.

They expect the business to look like the banking industry, which has had a burst of mergers and acquisitions. That industry now has a core group a large companies that control most of the assets and a vast number of small banks that serve niches.

That trend is taking shape among property and casualty insurers. The largest 100 companies control about 83 percent of the business.

"What is happening is outside forces are growing and exerting pressure on the industry," Wehrly said.

Not only does size matter, but so does a company's ability to make money in a business that is jammed with competitors and razor-thin profit margins.

Insurers have engaged in "unrelenting price wars" over the past 10 years, especially in the property and casualty business, Wehrly said. "The industry conditions just stink."

Hugh Warns, an analyst at Baltimore-based Legg Mason Wood Walker Inc., said premium growth is so slow that companies have few options to improve profitability. He said they can cut costs or make acquisitions.

"It is not really a growth industry," he said.

Warns expects the deal-making to accelerate once a group of huge life insurance companies that are owned by their policyholders go public. They include, Metropolitan Life Insurance Co., Prudential Insurance Co. of America and John Hancock Mutual Life.

Three months ago, MONY Group of New York Inc. went public, raising $304 million in an initial stock offering.

"It is going to be a big acquisition boom on the life insurance side," Warns said. "Everybody is going to buy everybody else."

Pub Date: 2/19/99

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