The Sunday Times led the way this weekend with the news that Allianz is surveying the insurer smorgasbord and keen to fill its plate.
According to sources, on the menu are: Aviva, QBE, RSA and Zurich.
Unsurprisingly everyone is refusing to comment on “rumour and speculation”.
Allianz had long been tipped as ready to snap up XL, but in the end Axa jumped the queue and got the deal done.
This left Allianz’s CEO Oliver Bäte outside the restaurant missing the party with his nose pressed up against the window. And somewhat frustrated.
LV
There is no doubt that the German insurer has considerable financial firepower and could easily pick up the tab for whatever grabs its fancy.
So much so in fact that everyone was quite surprised when the rumours of a partnership with LV first emerged last year. The feeling was that Allianz could easily buy the insurer outright, almost at the drop of a fork, and so why wouldn’t it?
As it turned out the deal was indeed an initial joint venture leading to options on a full blown takeover.
Integrating the two providers has already started. And from the outside it appears to be so far so good. The chewing is well underway but the digestion is yet to fully kick in. There will be hiccups along the way.
The next course
Is this the ideal time for another course?
Of all the delicacies listed, Zurich has a current market cap of £34.2bn; Aviva £20.4bn; QBE of £7.3bn; and RSA £6.9bn.
However the Sunday Times article was clear that Allianz was not interested in a hostile takeover.
If we take XL as a guide, the $15bn cash offer recommended by the board to shareholders was 33% higher than the share price.
So I guess you can add a third to the numbers above.
Appetiser
Zurich with its worldwide reach would, in my view, lead to incredible indigestion as a main course after the LV appetiser.
Aviva and RSA might be more realistic portion sizes but even they would create challenges.
Would brokers welcome a move?
In 1998 Commercial Union merged with General Accident to create CGU.
In 2000 CGU merged with Norwich Union.
It is fair to say the upheavals did not suit everyone’s palate.
Consolidation
There is an argument that as consolidation in the broker market increases so ultimately it is unsurprising that it goes on in the insurer market too.
The link makes sense but it is not a straight line correlation.
The cost of doing business is a crucial factor.
Any deal would undoubtedly come with a reduction in headcounts and so forth.
I have to wonder whether the focus on customers would be at the top table in all this.
Choice
There is plenty of capacity in the ongoing soft market and new MGAs open up seemingly every day. Brokers would cope.
But, in the short term at least, it would lead to a worse overall situation.
Choice would be reduced and where it really matters – the day to day trading relationships with underwriters and claims teams – would be hit.
Innovation would also be stifled. Every takeover leads to a period of navel gazing and checking out the newly expanded waistline. It is a period that no amount of antacid can solve.
No deal
All this isn’t to say that a deal should not be done.
Nothing stays still and the market should change and develop.
Allianz may yet strike no deals. Or one. Surely it couldn’t do two – there’s absolutely no way it could also have room for dessert.
Brokers will hope that if one does happen then it’s the right size and at the right time.
The question remains just how big is the insurer’s appetite?
Emmanuel Kenning is a reporter on Insurance Age
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