Mergers and acquisitions increased in the insurance industry in 2004, the first such rise in three years, according to a recent analysis of the industry.

The number of mergers and acquisitions rose to 292 from 238 in 2003, according to a database maintained by Conning Research & Consulting Inc. in Hartford. The increase was driven by mergers and acquisitions among brokers and agents and in the health insurance industry, particularly Medicare and Medicaid, said Clint Harris, Conning’s vice president of insurance research and publication.

The attraction to Medicare and Medicaid business is an opportunity to improve market share as margins are squeezed, he said.

Brokerage firm Brown & Brown Inc. in Daytona Beach, Fla., spearheaded 24 mergers and acquisitions among 190 agent and brokerage firm transactions. The number of transactions is up from 118 in 2003.

Cory Walker, chief financial officer of Brown & Brown, attributed the number of acquisitions to a soft market characterized by declining insurance rates.

"If an entrepreneur is looking to sell a business over the next two or three years, they’re looking at it now," he said.

The industry last year did not negotiate megamergers, which Conning defines as deals of $10 billion or more.

"One of the problems is that mergers are risky and megamergers are mega risky," Harris said.

Casualty insurance businesses, for example, take a risk with mergers involving companies that could be exposed to continuing liability related to asbestos lawsuits, he said.

One megamerger already has been announced this year: MetLife and Citigroup Inc. announced an agreement for the sale of Citigroup’s Travelers Life & Annuity and substantially all of Citigroup’s international insurance businesses for $11.5 billion.

The effect of mergers and acquisitions on shareholders raises _ but doesn’t immediately answer _ questions such as whether the transactions increase the value of a company’s stock.

For customers, figuring out the effect of mergers and acquisitions also is complicated, Harris said. Mergers change relationships between consumers and insurers and could lead to discontinued products and services.

The study did not track changes in industry employment that followed mergers and acquisitions.

Peter Kochenburger, director of graduate programs and a lecturer in law at the University of Connecticut, said insurance mergers are often the result of a demand for shareholder value. "It’s not unique to insurance," he said.

Despite the increase in mergers, concentration has not risen in the industry, Conning said. The top 10 property-casualty businesses wrote 44 percent of premiums, which was largely unchanged from 2003. Among life insurance firms, the top 10 businesses wrote 39 percent of polices in 2003, down from 45 percent in 1998.

Chief executives surveyed by Conning said they expect more consolidation as competition increases.

Source: http://www.newsday.com/