Consolidation is the current buzzword in the grey world of insurance, cropping up in a variety of announcements and developments this week from international and Irish insurers, the people who, at a price, provide a financial safety net from life's annoying and costly little surprises. The big egos of the business, General Accident and Commercial Union, are proposing their own cosy union, with a £14 billion sterling merger which will make the emergent monolith one of Europe's biggest insurance and asset management operations. The deal has implications for the Irish market where both are prominent players. The merger, which follows on the heels of the Royal Insurance/Sun Alliance get-together, is seen as the biggest consolidation the industry has yet seen. Other businesses, however, have abandoned the Holy Grail of size, accountancy giants KPMG and Ernst & Young meeting unexpectedly heavy flak from clients over their planned mutual interest merger.
The winds of change buffeting insurance strategists are matched only by the elemental forces of nature, the severe storms over last Christmas and the New Year costing Irish insurers around £38 million in damage claims, the biggest-ever claims' payout arising from a single event. Results from Guardian and Hibernian this week whipped a few tiles off the roof, with the high incidence of household claims denting earnings. Underwriting losses at Guardian, the State's biggest insurer, jumped from £7.6 million to £19.6 million with rising motor claims an additional depressant. Happily profits on investments wiped out underwriting losses, the pre-tax outcome rising 36 per cent to £87.8 million. Over at the Hibernian, insurance group revenue last year improved 9 per cent to £315 million but a bulge in the incidence of claims lopped 2 per cent off operating profits at £26.4 million. However, pre-tax profits moved briskly ahead, up 28 per cent to £43 million, also assisted by strong gains from realised investments. Premium income grew 7.5 per cent to £238 million, but the underwriting loss rose £1.5 million to £22.3 million. The market liked the results, the share price given further strimulus by CU's 28 per cent holding in the company.
For bigger fish like General Accident and Commercial Union, size has its down side, tending to ring warnings bells with customers who fear a narrowing of choice and rising user costs. KPMG and Ernst & Young recently decided to abandon merger plans in the face of unfavourable public and client opinion. Big insurers who want to become bigger could well face similar perceptual difficulties.
