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Reinsurer consolidation continuing: Fitch

Consolidation of the global reinsurance industry will continue as intense competition and high levels of capital drive mergers and acquisitions, says Fitch.

The ratings agency says smaller players lacking scale and diversification will see further pressure on growth and profitability.

“Marginalised companies are increasingly incentivised to explore M&A, as they face the challenges of operating in a difficult market environment,” it says.

“The potential benefits of consolidation for reinsurers include revenue diversification, economies of scale, improved return on capital and an enhanced competitive position.”

However, buyers should think carefully before committing to a purchase.

“Acquirers in a competitive bid situation run the increased risk of dilutive rather than accretive acquisitions, particularly when assessing the reserve adequacy of a target company and the potential complications in execution and efficient integration.”

Recent large deals include Axa’s acquisition of XL Group and AIG’s purchase of Bermuda-based Validus.

“Both deals provide access to established alternative capital platforms that neither company has currently,” Fitch says.