Second quarter mergers escalate global scene

In a move that has escalated global primary company consolidation, CGU Group and Norwich Union announced they will merge their operations. The new company, CGNU, will form the UK’s largest insurance group and feature worldwide premium income and retail investment sales of 26 billion pounds. The deal, more accurately characterized as a CGU acquisition, is a stock swap arrangement, with Norwich shareholders receiving 48 CGU shares per 100 shares of Norwich.

The transaction has already reverberated across other markets, with ING Insurance Holdings Inc. announcing it has teamed with WellPoint Health Network, launching a $68 cash and stock bid to take over U.S. health insurer Aetna Inc.

As part of the CGNU merger announcement, the company will divest its U.S. property & casualty interests. According to CGU Group Canada Ltd. president Mark Webb, market speculation that Canadian operations could be spun-off with the U.S. holdings is inaccurate. “With the Canadian operation, we are in a market leadership position, which is exactly the strategy of the new CGNU — to specialize in areas where we are the leader.” Despite a higher premium volume in the U.S. (an estimated US$3 billion compared to CGU Group Canada’s over Cdn$1.8 billion volume), its U.S. p&c volume affords them mere competitor standing, as oppose to its Canadian leadership status.

The worldwide merger could have little affect on the Canadian market, Webb admits. He says other Canadian p&c companies are watching to see if CGU offers life products to their brokers. “An interested scenario is developing because other companies have looked at selling life products. We’re now in the position to do so, but we wouldn’t propose doing it unless there is a demand from our brokers.” Norwich Union Canada president Bill James says his company has an estimated 1.5% market share of total Canadian premium life volume. “It’s too early to tell whether we will be taking advantage of CGU’s distribution channels,” he says.

Global insurers are nervously monitoring the situation, say observers. “Companies that have been putting off mergers or waiting for the right partner are going to feel shareholder pressure and soon,” says the observer.

Just days after the CGU/Norwich announcement, a London newspaper reported Royal & SunAlliance has been in discussion with potential buyers including Allianz and Generali. The company has been closely linked recently with Zurich Financial, a deal that has been alternatively reported near completion and near death by different sources.