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Why Buy When You Can Just Take?

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24 March 2009
Michael Fitzgerald

I had a very interesting conversation with a couple of executives at a leading Property / Casualty company this past week that gave me a very different perspective on future mergers and acquisition activity.

They work for a Tier 1 player -- not one you hear a lot about in the news because they are doing pretty well.Sure, they have their asset impairments like everyone, but they are not in financial crisis.

So, I asked “Who are you guys going to buy when you are convinced that valuations have hit bottom?” Their response: “Why would we buy when we are going to take their business anyway? When our competitors go to a B-rating, their customers will move, and we are confident that we will get the more than our fair share.” (Machiavelli would be so proud!)

It turns out that their submission volume has doubled in the past few months over what it was last year, and this increase is from a high base – from multiple tens of thousands to 2X multiple tens of thousands.

The story gets better.A few years ago, this company began to implement automated rules based underwriting and sophisticated predictive model pricing technology in their commercial lines business.This was well before these technologies were anywhere close to maturity in this space.

The result -- they are handling the submission increase (remember – double) so far with NO increase in headcount.

For me, this is a striking illustration of the payoff and power of “betting on the come” with an investment in IT, business process change and making it happen through superior execution. Also, I realize that there may be less M&A activity than previously thought because of the "flight to quality" that is already happening.

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