To Merge or Not to Merge
‘Tis the Question’?
Market stress is forcing smaller mutual insurance companies to look at potential affiliations and mergers as they struggle to place their reinsurance. Some mutuals feel there are no options except a merger, but this is not the case.
What are the pros?
A merger can be beneficial to help with succession, help to gain scale and efficiency and can improve capital & surplus. In some instances, a strategic merger is valuable to gain access to products, to diversify risk or to gain access to technology while helping to mitigate overall expenses.
What are the Cons?
The primary con to a merger is giving up control of your destiny. Once a merger is complete, there will be a controlling entity that starts to make decisions for you. Do you want to give up that control and independence?
The second is relinquishing control of the surplus you have built up over years of operations (often over a hundred years). Why should you give up your surplus to the benefit of another organization? If there is strategic value to provide technology, products, capital, or succession, then it might make sense. If there is not a strategic reason to merge, then why share your capital with another organization. Especially another organization that lost most of their capital.
In no order, there are other possible considerations. Does a merger reduce your ability to impact your local community? Does a merger impact your agency relationships? Does your staff stay in place or do redundancies in operations mean you have to reduce staffing? There is significant execution risk with integration of multiple companies, products, and people. Does the management of the controlling entity in the merger have the capability to manage the execution?
All are considerations to be evaluated on a case-by-case basis. Any merger or strategic partnership must be looked at very closely with a discerning eye. The key advice from Mutual Underwriters, do not rush to judgement, be very careful when evaluating.
About Mutual Underwriters
Mutual Underwriters is an insurance administrative services and managing general agency headquartered in Carmel, Indiana. We provide reinsurance to small mutuals and have new capacity unencumbered by legacy exposures. The company mission is to provide management expertise, product development, underwriting expertise, and strategic advice to small insurance companies, Mid-size insurance carriers, MGAs, and Program administrators.