Top P/C trades kick off official merger talks, due diligence

The top property casualty insurance trade groups could soon get past the flirting stage, although it is too early to ring any merger bells.

In a June 19 memo to the CEOs of the Property Casualty Insurers Association of America, the U.S.’s largest property casualty  trade group, chair Kurt Bock acknowledged he had been exploring a potential merger with the American Insurance Association.

A joint AIA-PCI chairmen’s statement attached to the memo, obtained by Washington Insurance Rider, stated that the AIA and PCI boards have now authorized merger discussions and the accompanying due diligence.

If such a merger occurred, the resulting organization would represent about 60% of the U.S. property casualty market, according to the trades’ leadership. The AIA board chair, who also signed on to the joint statement, is Anthony Kuczinski, CEO of Munich Reinsurance America.

The PCI-AIA vision is for the combined organization, should a merger occur, is to act as the “preeminent” voice for personal, commercial and specialty property casualty companies while also servicing members with information and compliance needs, according to the two chairs’ statement.

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Bock, who serves as CEO of mid-sized insurer COUNTRY Financial, noted in his memo that AIA had approached PCI’s board leadership about exploring a strategic alliance, “given the rapidly changing dynamics of our industry.” Bock told his member CEOs that the PCI board would make a recommendation to the full  PCI membership later this fall. PCI traditionally holds its annual meeting in the fall.

 

Over the past few months, the CEO of AIA, John Degnan, and the CEO of PCI, Dr. David Sampson, not only held talks but created reports on a possible “policy alignment” between the two trade groups. The AIA and PCI boards have reviewed the reports and proposed a possible governance structure for a merged AIA-PCI trade organization.

The memo gave no indication of what the new board or organization might look like or who would eventually lead it.

AIA has shed members over the past decade although it has won a few recent new companies as well, but it is still a much smaller organization than PCI. Degnan has been in the job less than a year and has signed on members such as CNA Financial, as well as begun these new merger talks during his brief tenure. AIA had in the past two or so years conducted merger conversations with the Reinsurance Association of America, talks which did not come to fruition.

AIA, under both Degnan and his predecessor, has also been more vocal on international issues such as the covered agreement on reinsurance and is active and present in Washington and at the state level than has PCI.

PCI is a much larger group with almost 1,000 member insurers and reinsurers –and more varied membership. Its members write $220 billion in annual premium, according to PCI’s website and Bock’s previous testimony. PCI is based in Chicago but has a large Washington presence in glass office buildings tucked in front of the U.S. Capitol building, clsoe to Union Station.

AIA has more than 330 companies as members who collectively represent more than $134 billion in annual premiums, according to its website. The 150-plus year-old organization is based in Washington.

PCI is also  heavily involved and influential in Congressional activity, especially before the House Subcommittee on Housing and Insurance. Bock has testified before both the House and the Senate on multiple federal and state insurance issues.

PCI leadership has “consistently underscored that our top concern was to not do anything (sic) that could diminish the value proposition we deliver to our members,” Bock stated in the memo, which was obtained by Washington Insurance Rider.

“This only makes sense if we can see a path forward to gain accretive value first for our members, and secondly for the industry,” Bock wrote.

In the joint statement, Bock and the AIA’s Kuczinski, stated that the “respective Boards of AIA and PCI believe there is great benefit in a more unified policy and advocacy voice for property casualty insurers, given the “unprecedented pace of change in the world” and the resulting potential opportunities and challenges.”

The company CEOs did not detail these opportunities or what they later referred to as “unprecedented challenges.”

Leading issues before the states and Congress and international bodies include new global capital standards, flood insurance reform, the use of data mining algorithms and artificial intelligence, arbitration in legal cases, the use of technology, social policy issues such as firearms, availability and affordability of homeowners and auto insurance, drone use, reinsurance collateral terrorism risk and the advent of self-driving vehicles.

The company executives told members that there is still a lot of work to do before they can make a final recommendation to them regarding a merger.

They underscored industry unity as the driving force behind the “most paramount property casualty issues at the state, federal, and international levels,” and talked about strength in numbers.

Spokespersons for both PCI and AIA were not immediately available for comment, but this story will be updated as needed, and updates noted.

The joint statement made clear that the combined entity would promote  the U.S. state-based regulatory system and also seek to improve it. The Bock memo and joint statement was sent a day after Steve Dreyer assumed the role of director at the Federal Insurance Office at the U.S. Treasury, a top federal insurance job that had been vacant for nearly a year and a-half.

 

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