Insurance industry mergers and acquisitions increased in 2005 tothe highest level since 2001, and may foreshadow an acceleration ofactivity this year and the next, according to a new study byConning Research and Consulting Inc.

Stephan Christiansen, director of research at Conning, cited anumber of factors in the urge to merge.

“The insurance industry is growing capital faster than revenue,and while revenue growth is anemic, prospective profitabilityappears relatively solid,” he said.

In addition, stock performance for the industry has beenrelatively strong, with each of the sectors outperforming theS&P 500 from 2002 through 2005.

In 2005, insurance M&A transactions across all sectorsincreased to 324, and the total values of these transactions grewto $50.8 billion, exceeding 2004 levels, according to Conning.

“Public offerings, including secondary offerings, were strong inproperty-casualty but declined in all other [insurance] sectors,”Conning reported.

The p-c sector reported 49 transactions worth $9.3 billion invalue. The major transaction in this total was Swiss Re'sacquisition of GE Insurance Solutions, announced in November oflast year and valued at $6.8 billion.

“Some consolidation in personal lines and medical malpracticesectors may presage greater insurance sector restructuring tocome,” the report stated.

Perceptions of the risk of M&A transactions may be replacedby new perceptions of the risk of not acquiring businesses in thep-c sector, which still remains highly fragmented.

“We believe advantages of scale are increasing in the industryfor a variety of reasons,” Mr. Christiansen said.

Among the factors spurring p-c mergers are higher capitalstandards from regulators and rating agencies, along with improveddiversification from catastrophe-exposed markets, the reportsaid.

There were 21 transactions in the life sector worth a total of$22 billion, although two transactions accounted for 90 percent ofthis total.

“We believe conditions are favorable for an acceleration intransactions in 2006, based on the buildup in capital, decliningorganic growth opportunities and increasing complexities in thebusiness,” the report said.