The Research Of The Price Of M&A Between Life Insurance Firms

These days, the global life insurance industry has been undergoing a hot wave ofmerge and acquisition (M&A). In china, though there hasn't been any M&A betweenthe life insurance companies by now, it will be tendency.Pricing is one of the most important steps in the process of M&A. But traditionalpricing theories are of no application here because of the special characteristics ofinsurance companies. Based on it, this paper does some research on how to use suitablemethods to determine the price of company in the position of being taken over.The author contends that the price of life insurance company will be determined bynegotiation when the upper limit and lower limit of the price are set. Thereafter, theauthor will follow such logic to lay out this paper.Chapter one proves that, through theory and empirical evidence, the appraisal value ofthe target life insurance company, which is calculated by the actuarial appraisalmethod, is much closer to the market value than the result calculated by traditionalmethods. So the appraisal value here as the lower limit of the price can be obtained bythe actuarial appraisal method as the appraisal value.Chapter two improves the traditional method to evaluate the value of synergy of M&Abetween the life insurance companies. At the same time, it evaluates the real value ofthe option imbedded in the M&A by the method used to calculate the financial option.The value of generalized synergy, which is constituted by the value of the synergy andthe value of the real option, indicates the additional value from the M&A. The upperlimit of the trade price can be attained by adding the value of the generalized synergyto the appraisal value.Chapter three simulates the negotiation under five conditions and determines M&A'sprice between the lower limit and the upper limit by the means of game theory.Finally, this paper, based on the above research, resolves the problem of determiningthe price of M&A between the life insurance companies. Furthermore, the authordraws a conclusion of the research and makes an outlook.