Insurance companies worldwide are shining their boots and strengthening their armouries in preparation for a post-pandemic boom.
As they prep their businesses for the ‘roaring 20s’ of the 21st century, many insurance organisations are turning to mergers and acquisitions (M&A) to add muscle power, dominate distribution, and become the go-to market for new and returning customers.
For some, this means buying out the competition.
Aon’s $30 billion bid for Willis Towers Watson is a prime example of “doubling down on what we both know”. The mammoth deal will create the world’s largest insurance broker and generate close to $1 billion in cost-saving synergies.
Talk about muscle power.
What’s more, the mega-merger – which is currently under scrutiny by multiple regulators around the world amid concerns that it might have an unfavourable impact on competition in key markets – has already triggered further M&A opportunities.
As part of a proposed regulatory remedy for the pending deal, Willis Towers Watson agreed to sell some of its reinsurance, specialty and retail brokerage operations to rival brokerage giant Gallagher for a cool $3.57 billion.
Yet another Goliath becoming more Goliathan.
Is that the way the market is headed? Huge corporations buying from huge corporations because they’re the only ones who can afford a stake the game?
The Hartford’s triple rejection of Chubb – the largest Goliath of them all – would suggest that there’s more at stake in these transactions than just muscle power.
In April, it was revealed that Hartford Financial Services Group – a US-based property & casualty (P&C) insurer with roots tracing back more than 200-years – had rejected three “unsolicited” buy-out offers from Chubb, the largest of which valued the firm at nearly $25 billion.
If successful, the deal would have expanded Chubb’s capabilities in the market for small-business coverage, while also adding a fund manager and employee-benefits operation. The huge takeover bid would have been one of the industry’s biggest deals in years, coming close to Chubb’s near $30 billion combination with Ace Ltd. in 2016.
While Hartford is a sizeable and powerful operation in the US, its rejection of Chubb felt a little bit like a “stick it to the Man” moment.
The insurer’s board of directors said that after “careful consideration,” Chubb’s “unsolicited” non-binding takeover proposal was “not […] in the best interests of the company and its shareholders”. Hartford then “reaffirmed its commitment and resolve in the continued execution of [its] strategic business plan.”
Take that, Goliath.
So, what happens next? With Chubb pulling the plug on its brief courtship with Hartford, sources familiar with the situation told Bloomberg that Allianz (another P&C insurance behemoth) was privately considering making a counteroffer for Hartford. One giant leaves and another steps in to take its place.
But what happens when all the giants merge, or their attention is hyper-focused on each other? That’s when David can step in with his slingshot. With the giants flexing their muscles, it will take effective strategy for the smaller insurance firms to succeed … but anything’s possible.
