Strategic Buying Spree.

If 1998 was the year of the megamerger, 1999 was the year of the minideal. Insurance companies, looking to leverage their core operations, shed pieces of business that were unrelated, or they acquired pieces that matched. "Because segments of a company's business can be bought and sold relatively easily, you may see them move from company to company until they find a home where there's a good fit," said Robert Hartwig, vice president and chief economist at the Insurance Information Institute.

Strategic buying and selling of segments seems contradictory to financialservices consolidation, but both trends reflect the competitiveness of the marketplace and the fact that insurers disagree about the best way to compete in the 21st century, Hartwig said.

As boutique buys replaced megamergers, there was a 71% decline in insurance merger-and-acquisition value and a 9% decrease in the number of transactions during the first six months of 1999 compared with the first months of 1998, according to a Conning & Co. study. While the $37.4 billion Travelers-Citicorp merger to form Citigroup and the $21.4 billion merger between General Re and Berkshire Hathaway captured headlines in 1998, the only megamerger for the first half of 1999 was the $9.7 billion merger of Aegon and Transamerica, said Nancy Carini, Conning vice president and author of the study.

More typical of the year's M&A activity were deals between Cigna Corp. and Ace Ltd., Aetna Inc. and Prudential Insurance Company of America, the St. Paul Cos. and MetLife Auto & Home, and Allstate Corp. and CNA Financial Corp.

As part of an ongoing effort to move from a multiline business to a health and employee-benefits insurer, Cigna, based in Philadelphia, sold its U.S. and international property/casualty companies to Ace Ltd., Bermuda, for $3.45 billion in July. Cigna provides health care, group life, disability, and retirement and investment services.

Aetna became the largest healthcare provider in the United States by buying Prudential HealthCare for $1 billion in August. The merged company has 21 million members, including 18 million managed-care members. Aetna, based in Hartford, Conn., estimated that with the acquisition it serves one in 10 Americans. For Newark, N.J.-based Prudential, the sale allowed increased focus on its core insurance and asset-management business.

The deal between St. Paul and MetLife Auto & Home took St. Paul out of the race against the personal-lines giants and pushed MetLife from the 19th-largest writer of personal-lines insurance to No. 11. MetLife Auto & Home is the brand name for Metropolitan Property & Casualty Insurance Co., Warwick, R.I. The company paid $600 million for St. Paul's standard personal insurance operations, after St. Paul Chairman and Chief Executive Officer Douglas W. Leatherdale determined his company could not grow its personal-lines business large enough.

"Our near-term goal is to be a top-10 carrier, and our longer view is we'd like to be in the top five," said Richard Berstein, MetLife Auto & Home vice president, general counsel and secretary.

St. Paul's goal is to become one of the leading global commercial insurers with a heavy emphasis on specialty products and niches, Leatherdale said.

Allstate, the second-largest property/casualty insurer in the nation, took another step in its effort to unseat State Farm as No. 1 when it purchased the personal auto and homeowners' business of CNA Financial Corp., Chicago. The transaction, valued at $1.2 billion, closed in October. Allstate, Northbrook, Ill., said CNA's 3,800 agents in 43 states fit well into its strategy to rapidly expand its independent agent force.

CNA, primarily a commercial-lines insurer, is restructuring its commercial businesses and re-underwriting much of it in an effort to gain profitability.

Given the continuing soft market and the changing face of financial-services regulation, insurance companies are "at the cusp of what is likely to be five or more years of experimentation," Hartwig said.