M&A Uptick in 2012

The insurance industry is likely to see more robust mergers and-acquisitions activity in 2012, according to a New York investment and research firm.

In 2011, the M&A deal volume started off relatively slowly, followed by a notable pick up in the latter half of the year.

Keefe, Bruyette & Woods said that it expects the M&A deal flow to pick up even more in 2012 because of continuation of limited organic growth opportunities, coupled with declines in investment returns and excess capital placing a drag on returns on equity.

The firm said most of Bermuda remains open to M&A, likely in the form of mergers of equals. It also expects M&A activities to continue in the small-to-mid cap specialty/regional insurer space.

It said it is highlighting names such as American Safety, Eastern Insurance and Navigators Group as potential takeout candidates.

The report also mentioned Nationwide Mutual’s acquisition of Harleysville this year and how Harleysville was able to fold its mutual under Nationwide’s, essentially leveraging the mutual’s capital to increase the return to public shareholders. The Nationwide/Harleysville deal has created increased interest in other names that have a downstream mutual structure like Donegal, State Auto Financial Corp. and EMC Insurance, the firm said.