Bangkok--26 Jul--Standard & Poor's
Standard & Poor's Equity Research Services sees a combination of consolidation and global expansion as the primary driver for long-term growth among life and health insurance companies. These and other findings are available in a semi-annual report on the insurance industry, Insurance: Life & Health Industry Survey, published by Standard & Poor's, a leading provider of independent investment research.
Following a record year for mergers and acquisitions in 2005 where 28 deals valued at $21.8 billion were announced, Standard & Poor's Equity Research expects the current transaction pace to continue during the second half of 2006 and into 2007, as larger firms reassess their business mix. These companies may look to add complementary product lines via acquisitions of smaller insurers or, conversely, spin-off or sell underperforming assets in an effort to improve profits and focus on core competencies.
"Insurance is a mature industry in the U.S. and these companies are facing a number of headwinds: a flat yield curve, increased competition and middling performance in the equity markets. As a result, in our opinion, life and health insurers need to continue to improve their U.S. operations, while looking for other sources of growth," said Frank Braden, Life Insurance Analyst, Standard & Poor's Equity Research Services. "As domestic growth slows, we think these firms will place greater emphasis on global expansion, paying particular attention to the Pacific Rim, India and Mexico. The near-term benefits of this expansion are expected to be offset by large upfront costs. But longer term, we believe these markets represent significant, high-margin growth areas."
Standard & Poor's Equity Research sees international expansion benefiting MetLife (MET: $52, 5-STARS out of 5) and Prudential (PRU: $78, 4-STARS). Both companies, in our opinion, also remain focused on enhancing distribution, controlling costs and offering new products that address consumer needs.
MetLife's strategy is to establish meaningful positions in growing international markets that offer attractive margins. The company currently has growing and profitable businesses in Korea, Mexico and Japan. We see their increased presence in Brazil and Hong Kong adding meaningfully to operating earnings in 2008 and expect opportunities in China and India to benefit the company beyond 2008. Meanwhile, Prudential currently has a significant presence in Japan and Korea and we see new products and a strong distribution network improving results. We expect selective acquisitions to be targeted toward a limited number of attractive countries including China and Mexico.
To view a video clip of Standard & Poor's equity analyst Frank Braden discussing the sector, please click here.
Standard & Poor's Industry Surveys provide a broad and fundamental overview of each industry's structure, its recent performance, and an analysis of trends that are expected to influence it in the future. Each Survey is organized into the following sections: Current Environment, Industry Profile/Industry Trends, How the Industry Operates, Key Industry Ratios and Statistics, How to Analyze a Company, Industry References, Comparative Company Analysis, and a Glossary of terms used in that industry. Both text and data are provided, as are references to additional sources of industry information. Two surveys on each industry are published each year.
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The analysts quoted above are Standard & Poor's equity analysts. They have no affiliation with any companies they cover, nor any ownership interest in any companies they cover.
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