Insurance Industry Consolidation Update

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Consolidation in the insurance industry continues to be a hot topic. The proposed Aetna-Humana and Anthem-Cigna combinations are working their way through regulatory approval and have drawn significant scrutiny. As the U.S. Department of Justice’s Antitrust Division reviews the deals, both the American Medical Association and American Hospital Association have weighed in opposing the deals and presidential hopeful Hillary Clinton has also expressed concern with the transactions.

The AMA, AHA, and Mrs. Clinton are concerned about geographical overlap between the companies which could stifle competition and expressed concerns that the consolidation would leave the companies with too much power. They are also skeptical about whether any savings born from the consolidation would be passed on to customers, citing studies that have shown companies often keep the savings for themselves in the form of larger profits. Erosion of patient care is also a concern as practitioners could see their rates drop due to their decreased bargaining power which could lead to less ability to reinvest in their practices. Conditions placed on approval of the combinations by the DOJ, such as divestiture of geographically overlapping business, will significantly shape the impact of them.

While these health insurance company mergers continue through the regulatory approval process, the property and casualty insurance industry has seen some significant merger activity of its own. The Chubb Corporation and Ace Limited are moving forward with a nearly $30 billion merger. The proposed transaction still needs final regulatory approval, but has already been approved by the shareholders of both companies. The combined entity will be operated under the Chubb name, but will be led by Ace’s President and CEO. Chubb has primarily operated in the domestic US insurance market while Ace has a broader international book of business. Overall the companies’ businesses are generally complimentary without significant overlap. In the areas where there is overlap, such as personal line coverage to high net worth U.S. customers, the companies expect to realize expense savings of approximately $650M annual within several years. The deal is expected to close during Q1 of 2016. With low organic growth and a continuing low interest rate environment, additional P&C mergers could soon follow.

 Shawn Gillon, CPA Shawn Gillon, CPA
732-828-1614
sgillon@withum.comShawn Gillon, CPA

 

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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals.

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