As in past soft property and casualty markets, insurer appetite for mergers and acquisitions is strong today. But what distinguishes the current wave of deals is strategic buys of specialty-flavored books that focus on lines like inland marine, slices of medical professional liability, crop insurance and even elevator-maintenance contractors.
Although specialty books of business are typically smaller than potential standard-lines acquisition targets, what makes them so appealing is that some run at combined ratios below 90, says Jerry Theodorou, vice president of insurance research & publications for Conning in Hartford, Conn. Firms with those sorts of numbers became very attractive in 2010, says Theodorou, author of Conning's annual report on insurance M&A trends released in March.
"M&A is typically a creature of the soft market," he tells NU. "When you can't grow your way out of the doldrums, you try to buy somebody else," he says, adding that sagging investment returns and soft-market prices pressuring loss ratios make standard-lines writers—with combined ratios north of 100—unattractive targets.
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