Buying an insurance competitor does not always improve financial strength, ratings agency Standard & Poor’s (S&P) says.

In a new report on global insurance mergers and acquisitions since 2000, author Dennis Sugrue says more than two-thirds of the 50 largest deals failed to improve the buyer’s financial rating.

Nearly two-thirds failed to warrant an upgrade in the buyer’s credit rating.

“The consensus of insurance industry observers is the industry doesn’t have a particularly strong track record when it comes to mergers and acquisitions,” he says.

“Across several measures, our empirical research supports this view, at least from a credit standpoint.”

He says measuring deals’ success in the insurance industry is not easy.

“Quite often, acquired books of business or companies are merged into existing entities, which makes it difficult to track performance. Due to the tail of business, in many cases ranging from 3-30 years, surprises can pop up far down the road.”

To identify long-term benefits, S&P examined insurers that sold an acquired business within 10 years.

“The results were not encouraging; on average, one in every eight buyers announced a disposal of the target company or a portion of its book of business,” Mr Sugrue says.

“In most cases the disposals were driven by underperformance of the target or the financial distress of a seller looking to dispose of non-core assets.”

Although S&P does not consider cross-selling opportunities when rating insurers, Mr Sugrue says this is often cited as a driver for acquisitions.

“We rarely factor these synergies into our ratings until we can see that they have been realised,” he said. “We have only identified synergies as a strength to an announced deal 5% of the time since 2000.

“History shows these synergies are often difficult to achieve, and quite often the goalposts move or are forgotten in the years after the deals are done.”

Despite the poor success rate, S&P believes mergers and acquisitions will continue this year, albeit at a slower rate than last year.