JLT's Insights Into the Impact of M&A on Insurance Pricing

February 2016

With no end to the soft insurance market in sight, Mergers and Acquisitions (M&A) among insurers accelerated in 2015, with further activity expected in 2016. Consolidation may concern businesses, as it potentially reduces competition and constricts capacity.

The signs are that capacity and competition are likely to remain undiminished, at least for the foreseeable future.

As a lot of the companies haven’t properly consolidated yet, the general market has not experienced much change and this will probably be the case until later this year. In the financial services industry however, with covers such as directors’ and officers’ (D&O) liability and professional indemnity, insurance decisions are driven much more by relationships so any potential uncertainty is not beneficial for clients.

Taking the mergers individually, the ACE/Chubb deal is huge from a global perspective and time will tell whether the mergers between Mitsui/Amlin and XL/Catlin will create more significant players in the UK arena.

What impact is recent M&A activity likely to have on pricing?

The market continues to soften and even the M&A activity is unlikely to change this because there is still significant capacity. The property & casualty (P&C) market has an over-supply of capacity and the market will remain extremely competitive provided there isn’t a significant deterioration in claims activity. The Christmas floods did lead to share prices falling slightly among the major carriers. RSA and Aviva were among the biggest fallers on the FTSE 100 after KPMG warned that the floods could cost insurers as much as GBP 1.5billion, which could impact future pricing.

There would have to be a couple of major mergers however to seriously impact premiums.

How might it affect levels of service and clients’ points of contact?

In the P&C space, short-term service may suffer because of temporary instability within the new companies who will take some time to realise efficiencies and integrate systems. In the longer term, however, service should return to normal levels or surpass them, as the new organisations will have an opportunity to improve and use it as a differentiator.

How can companies buying insurance take advantage of this changing landscape?

Stay close to your broker who will keep you updated on developments in the market and maintain and build relationships with existing and potential insurers. A strong client–insurer relationship will help the broker to secure the best terms available for any client. 

Continue to keep abreast of market activity and be open-minded about using the new insurers that are emerging. For example, companies who hadn’t previously considered getting a quote from Amlin or Mitsui should now request one from the combined entity, as the resources available to the merged company will make them a much more tempting proposition.

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For further information, please contact Jon Miller, Food & Agri Practice Leader on +44 (0)12 1626 7806