Anthony Hilton says big insurance company mergers don't deliver top line growth
Andy Haste, the talented boss of Royal & Sun Alliance (R&SA), told me over lunch just after Easter that by this time next year the group will finally have common computer systems. The last bit of the work to knit R&SA into one company will have been achieved. It will only have taken 10 years and it makes for a useful reality check at a time when the insurance sector seems on the threshold of one of its periodic bouts of merger mania.
Another such cold shower, should one be needed, was given at a conference organised by Insurance Times last autumn. The keynote speaker, Sir Laurie Magnus of Lexicon, pointed out what would have happened to the money if 10 years ago an investor had put £10,000 on deposit and another £10,000 into R&SA. His answer was that the money on deposit would have grown to £15,000. The money in R&SA would have halved to £5,000.
One should in fairness add that this is not Haste's fault. He achieved more in the past two years than his predecessors did in the earlier eight. Ironically, the more he so obviously sorted the business out, the more likely some predator will come in and snap it up.
Aviva's bid for Prudential and Resolution's bid for Standard Life leads to reflection on what happened to the last big UK domestic merger. Royal with Sun Alliance was an unmitigated disaster, not because the idea was wrong but because the execution afterwards was
lamentable. Aviva says the original merger between General Accident and Commercial Union and the subsequent takeover of Norwich Union were very effectively managed and delivered the cost savings and efficiencies promised. Though, as Sir Laurie also pointed out, investors have not really seen the benefits.
Aviva and its predecessor shares have been only a fractionally better investment than cash in the past decade.
Other mergers and takeovers have achieved what they set out to. Friends Provident under Keith Satchell seems a well run and coherent business, and Clerical and Medical within the HBOS tent, and Churchill picked up by RBOS are probably doing what was expected of them.
Mergers always appear seductive because most people go into a marriage thinking two can live as cheaply as one. Only afterwards do they discover that two can also be twice as inventive in finding other ways to spend money.
The real message for the insurance industry surely lies in the success of Legal & General among big companies and the string of smaller companies - Hiscox, Amlin Wellington, Kiln, and the rest - coming out from under the shadow of Lloyd's. They are real success stories because they are giving customers what they want and are therefore able to grow the top line.
Their prosperity is rooted in organic growth. They don't need to disguise weakness under the fig-leaf of a takeover strategy. IT
' Anthony Hilton is a columnist with the London Evening Standard