Will we end up with a few clones?

The Friends Provident/Resolution merger tells us one thing: Messrs Cowdery and Matthews share the view that, with significant over capacity in the market, consolidation is both inevitable and desirable. We can clearly see this in their businesses.

Resolution has structured itself as a consolidator and depends on the assumption of over capacity. Friends Provident’s Trevor Matthews takes a similar view. The delay over the summer was not a reluctance to consolidate, rather the means to the best approach and to the best price for all parties.

There is a real opportunity for the industry to pool talents and capabilities and the Friends Provident/Resolution deal is an excellent example of this. Friends Provident brings an attractive franchise, an experienced management team, efficient scalable systems, a strong capital position and a good fit with future possible acquisitions. Under its current management, Friends Provident has the potential to play a key role in Resolution's strategy for future takeovers and integration.

Resolution brings a team with considerable experience of financial services market analysis together with business valuations, and few would doubt Clive Cowdery's ability to search out profit opportunities.

So, what is the role of the economic downturn in this? Apparently weakened by the fallout from the credit crunch, Friends Provident swiftly became a target. While the credit crunch has undoubtedly hastened the pace of consolidation, it has also served to highlight an issue that has been forming for over 10 years: an excess of life assurance companies fighting over a relatively small amount of business, exacerbated by their limited ability to survive the downturn by their capital resources.

The issue has been simmering for some time. Cowdery was clear about his intentions early in 2008, a year during which Threadneedle acquired Invesco’s money purchase pensions business for £470m. Back in 2006, Old Mutual completed its acquisition of Swedish assurer Skandia.

In addition to the credit crunch, the looming prospect of Solvency II may play a role in accelerating consolidation as insurers need to further strengthen their accounting policies.

The takeover of Friends Provident is one of many likely deals. Rumours continue to circulate that Legal & General is next on Cowdery’s shopping list – with the L&G management team apparently preparing to ward off a hostile bid.

Given market conditions and the likely impact on pricing, Resolution must surely be lining up at least one other deal in the next 12 months. Clearly the larger the next deal, the less likely that there will be a flurry of further activity in the short term. But equally clearly we should not anticipate a prolonged period of quiet in the market.