The Nordic insurance market: Consolidation opportunities amongst the big four

Torstein Winterstø Ljøkjel & Aage Kristoffer Sand Solvåg

Studenteropgave: Kandidatafhandlinger


Mergers and acquisitions have shaped the Nordic general insurance market to how we know it today. It is primarily through consolidations that If, Tryg, Codan and Gjensidige have grown and established themselves as market leaders. The maturity of the market can be recognized in the current low organic growth possibilities. That makes us believe that consolidation still is as relevant today as it has been for the last century. A consolidation between two of the four market leaders would completely change the Nordic insurance market. The objective of this thesis is to uncover if this is financially possible and profitable. The strategic analysis examines the macro and micro economical factors affecting the general insurance companies in the Nordic region. We unveiled that the market is attractive with positive earnings prospects for the future. The Herfindahl 13-index indicates low market concentration. However, we find the competition intensity in the industry to be moderate. On the basis of the strategic analysis we perform a consolidation analysis. By analyzing the companies’ market shares and their strategies, we found that Codan and Gjensidige would be the best fit. The SWOT analysis supports our findings. Through a consolidation the companies could take advantage of their strengths and opportunities, and reduce their weaknesses and threats. Furthermore, we find evidence pointing to that Gjensidige would be the expected buyer in this consolidation scenario. The financial analysis and valuation is therefore only performed on Codan. The financial analysis shows that Codan has been profitable for the last five years. This is recognized in our calculations of return on net operating assets, return on equity and combined ratio. Through our prognosis we estimate that Codan will continue to be profitable. Based on the forecast, the residual income model estimates Codan’s value of equity to be DKK 33.367 billion. We estimate the total synergy effects between Gjensidige and Codan to be DKK 806 million. When this sum is added to the value of Codan, we find the maximum price that we recommend Gjensidige to pay for Codan in order to profit on the merger. We call this Gjensidige’s resistance point, and this value is about DKK 34.173 billion. When we take into account Gjensidige’s excess cash of NOK 8.9 billion, we believe that the merger is financially possible. If the actual price of Codan is below Gjensidige’s resistance point, we believe that this consolidation adds value and that it therefore is profitable.

UddannelserCand.merc.aef Applied Economics and Finance, (Kandidatuddannelse) Afsluttende afhandling
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