Liberty Mutual Group Inc.’s $6.2 billion acquisition of Safeco Corp., announced yesterday, may signal the start of a wave of insurance-industry deals, Bloomberg News rerpots.
Mercury General Corp., Hanover Insurance Group Inc., SeaBright Insurance Holdings and Infinity Property & Casualty Corp. may be takeover targets as larger rivals hunt for deals, analysts said. All four rose yesterday.
Insurers are cheaper now than they were a year ago after a 22 percent decline in industry stocks amid concern that subprime investments would reduce earnings. Falling premiums and a jump in advertising spending by the largest home and auto insurers including Allstate Corp. and Berkshire Hathaway Inc.’s Geico Corp. have prompted analysts to conclude that bigger is better.
“It’s a highly concentrated industry, and it’s getting even more concentrated,” said Jon Wright, an analyst at SNL Financial in Charlottesville, Virginia. “You need deep pockets to advertise, advertise, advertise to compete with the Geicos of the world.”
Property insurers boosted profits in 2006 and 2007 after the record losses of Hurricane Katrina prompted them to raise rates. No major hurricanes have made landfall in the U.S. since, leaving them with money to spend on price cuts and acquisitions.
