Economic growth and the following expansion are nearly inevitable for any company with regular revenues and a good reputation within the target market. As soon as a company gains an impressive reputation in the target market, it gets an opportunity for further growth. The latter can be facilitated by gaining more weight and acquiring new business partners, particularly, buying stocks of smaller companies (acquisitions), or establishing a partnership with a company of a similar influence (mergers).
The acquisition of smaller companies, as well as creating mergers with the companies of the same scale, also helps considerably when it comes to choosing an appropriate risk management strategy. There can be no doubts that a company with greater assets and influence also has to deal with much greater risks, particularly, the risk of losing an impressive amount of money due to wrong investments. A merger relies on the group captive (Rejda “Introduction to Risk Management” 49), which will provide the company the support that it will need in the worst-case scenario.
Speaking of mergers, one must mention that the given strategy also works rather well for the companies that are willing to expand. With a partner company acquired through a merger, however, some risks may be avoided or at least reduced to an appropriate degree. Indeed, such a technique as a noninsurance transfer will help reduce the cost of risk considerably. A group captive, which a corporation may have, appears to be more efficient than a single captive of a small company.
Apart from the company owners, insurers also benefit from mergers or other forms of mutual company holding. To start with, there is the so-called title of the Advance Premium Mutual, which presupposes that the insurer becomes the policy holder instead of being merely a stockholder. The upgrade in the status allows for more flexible relationships with the company and, therefore, increases the chances for an increase in dividends (Rejda “Types of Insurers and Marketing Systems” 90).
Also, once the company that uses the services of a particular insurance firm becomes a merger, an insurer gains the opportunity of choosing a cheaper and more accessible method of raising new capital. Thus, the insurance company also gains the chances for further expansion and, therefore, higher revenues. Also, once a merger or a company that has expanded through acquisition starts using the services of a particular insurance company, the latter gains an opportunity to enter new domains more easily.
The status of the Advance Premium Mutual is not the only reason for insurers to encourage mergers and acquisitions, though. Agents and brokers also benefit from providing their services to mergers. For instance, such fields as “a life insurer acquiring a property and casualty insurer” (Rejda “Types of Insurers and Marketing Systems” 91) become available. More to the point, for an Advance Premium Mutual insurer, it becomes possible to manipulate stock options to “attract and retain key executives and employees” (Rejda “Types of Insurers and Marketing Systems” 91).
Works Cited
Rejda, George. “Introduction to Risk Management.” Principles of Risk Management and Insurance. 11th ed. Prentice Hall. 2004. 41–60. Print.
“Types of Insurers and Marketing Systems.” Principles of Risk Management and Insurance. 11th ed. Prentice Hall. 2004. 88–106. Print.