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Valuation and Value Creation of Insurance Intermediaries


Claudia Max

The book offers a comprehensive analysis of insurance intermediaries from a capital markets perspective. It presents an up-to-date market perspective, drawing the attention to the important trends and developments in the industry and recommends strategies to secure future growth. Further, it offers a detailed description of a valuation approach specifically tailored to small and mid-sized brokers. Research on insurance intermediary M&A reveals that positive abnormal returns are achieved for acquirers. The author points out which factors lead to value creation and investigates performance drivers in the tied agent channel.
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4 Value Creation in Insurance Intermediary Mergers and Acquisitions: an Opportunity for Realizing Positive Abnormal Returns


4.1 Introduction

The European and North American insurance intermediary industry has experienced a long and intensive period of merger and acquisition (M&A) activity (Boubakri et al. 2008, p. 56; Balcombe 2009, p. 1). In North America alone, almost 2,400 M&A transactions between 2004 and 2013 – a 30 per cent increase compared to 1994 to 2003 – were classified as insurance intermediary deal158 by SNL Financial159. This unprecedented merger wave was at the one hand a strategic response of large brokers to increase shareholder value as well as to meet earnings and growth expectations in times of a difficult operating environment (Akhigbe, Madura 2001, p. 489; Cummins, Doherty 2006, p. 9–10; Boubakri et al. 2008, p. 56; Balcombe 2009, p. 1). In addition, banks and investment management companies pursued the goal to limit their stock price volatility by acquiring targets with stable cash inflows and low equity capital requirements (Klumpes 2007, p. 2; Nurullah, Staikouras 2008, p. 165, 167; Hales & Company 2011, p. 2–4). Insurers, moreover, acquired intermediaries to expand the reach of their distribution network and increase their customer base (Cummins, Weiss 2004, p. 5). US acquisitions into Europe as well as within European M&A transactions have significantly picked up in recent years in the quest for new growth and cost reduction opportunities, geographical reach, and the need for insurance intermediaries to increasingly underwrite complex international risks (Boubakri et al. 2008, p. 56). With an increasing number...

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