Fitch predicts increase in mergers
A Fitch Ratings report into merger and acquisition (M&A) activity in the reinsurance industry has found that it is likely to see increased movement in the area, as more stressful market conditions limit organic growth potential. Furthermore, the increased availability of alternative reinsurance could add to an M&A trend by providing further sources of capital to the market while potentially reducing growth opportunities for traditional reinsurers in direct competition with the alternative providers. “Many of these companies,” continued the report, “have seen their franchise value diminished in recent years as they are becoming marginalised in the face of increased capital market competition and could thus be viewed as prime acquisition targets.” Fitch views a certain amount of consolidation as a ‘modest positive’ for the reinsurance industry, because a reduction in the number of reinsurance companies and their associated underwriting capacity would reduce undeployed capital and therefore is likely to ease competitive pressures in the sector.
A Fitch Ratings report into merger and acquisition (M&A) activity in the reinsurance industry has found that it is likely to see increased movement in the area, as more stressful market conditions limit organic growth potential. Furthermore, the increased availability of alternative reinsurance could add to an M&A trend by providing further sources of capital to the market while potentially reducing growth opportunities for traditional reinsurers in direct competition with the alternative providers. “Many of these companies,” continued the report, “have seen their franchise value diminished in recent years as they are becoming marginalised in the face of increased capital market competition and could thus be viewed as prime acquisition targets.” Fitch views a certain amount of consolidation as a ‘modest positive’ for the reinsurance industry, because a reduction in the number of reinsurance companies and their associated underwriting capacity would reduce undeployed capital and therefore is likely to ease competitive pressures in the sector.
Considering the impediments to M&A activity in the reinsurance industry, Fitch noted that in recent years there have been a lack of sellers, which it says is a reflection of stressful market conditions, softening reinsurance pricing and a broadening of policy terms and conditions, which in turn have resulted in a deteriorating profitability profile for the sector.