An emerging international insurance consolidation ..
I suspect is a good sign for us Berkshires
regards
NEW YORK, Feb 18 (Reuters) - The proposed $9.7 billion acquisition of Transamerica Corp by Dutch insurer Aegon NV may be a defining deal that triggers a major shakeup in the rest of the U.S. life insurance industry.
The acquisition will make Aegon the third largest life insurer in the United States and will put renewed pressure on other large life insurers to find buyers or make acquisitions.
The Transamerica deal comes on the heels of last year's $18 billion acquisition of SunAmerica by American International Group Inc. , and the $70 billion merger of Citicorp and Travelers to form Citigroup Inc.
"This is going to increase the pressure enormously to find your place in the sun for ten years from now," an investment banker said.
Companies that are likely to be rethinking their strategic plans include American General Corp , Lincoln National Corp , Jefferson-Pilot Corp , Protective Life Corp , Conseco Inc and ReliaStar Financial Corp , analysts and bankers said.
Shares of many life insurers rallied on Thursday on takeover speculation.
Conseco rose $1.81, or nearly 7 percent, to close at $28.81. Jefferson-Pilot rose $4.12, or more than six percent, to close at $70.25. American General rose $3.87, or nearly six percent to close at $70.06, Lincoln National rose $4, or nearly five percent to close at $88.37, Protective Life rose $0.50, or 1.5 percent, to close at $33.75. Reliastar rose $2.87, or more than seven percent to close at $43.87.
Although many of the companies are large, most are likely to end up as targets rather than buyers as they increasingly compete against global financial behemoths and even major U.S. commercial banks, bankers and analysts said.
"I think it's unlikely, given their size, that they're going to remain independent," Bear Stearns senior life insurance analyst Jason Zucker said.
American General, which is one of the country's largest publicly-traded life insurers, may continue its role as an industry consolidator or may end up as a target.
The others, however, may follow Transamerica's lead and team up with foreign buyers, allowing them to stay essentially intact as the base for U.S. operations.
Aegon will retain the Transamerica name and logo and will extend it to the businesses of Aegon USA where appropriate.
The Transamerica deal also established a valuation yardstick, with Aegon paying about 1.7 times book value.
Meanwhile, the deal also puts pressure on the potential buyers as the list of sizable, attractive U.S. life insurers dwindles, Zucker said.
The most likely buyers are European insurance and financial service giants such as Internationale Nederlanden Groep NV , Zurich Financial Services , Assicurazioni Generali SpA , Royal and Sun Alliance Allianz AG Holding , Axa , and possibly even large reinsurers like Munich Re or Swiss Re, bankers and analysts said.
Indeed, ING late last year said the company plans to take over a large U.S. insurer in 1999.
"I think foreign buyers certainly have an advantage over U.S. buyers because they can write off the goodwill immediately," Warburg Dillon Read analyst Joanne Smith said.
U.S. buyers could include GE Capital, the financial services arm of General Electric Co , AIG and Citigroup, as well as commercial banks, analysts said.
Some U.S. life insurers, however, may consider merging with one another instead, but they are often derailed because of so-called "social issues", meaning more management and staff jobs are at risk.
But with financial services reform underway in the United States, the Transamerica deal is likely to spawn more deals, Smith said. "I think this just sets us up for another round of consolidation.
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