M&A activity “looms” over the Bermudian market as global re/insurers look to grow their books in a market where fresh underwriting ground is becoming increasingly scarce, A.M. Best analysts said in their recent report on Bermudian market trends.
Analysts said conditions in Bermuda were “ripe” for more M&A activity, although questions which could impact the rate and growth of M&A activity remain as to how long players will continue to set their agenda according to soft market conditions; “how the market will turn linger, with participants largely conceding that hardening across most lines of business is unlikely and most are now hoping for at least some pockets of hardening.”
The agency added that; “in the absence of some market-changing event, the Bermuda market will need to balance innovation and discipline for the foreseeable future.
“The convergence of all these factors forces companies to manage shareholder expectations while exhibiting underwriting discipline and remaining relevant to cedants.”
A.M. Best analysts maintained their negative forecast for the global reinsurance sector, and noted that in addition to market pressures pushing the Bermudian market space towards M&A activity, reinsurers have been increasingly turning “to primary and other classes of business, including mortgage (re)insurance, and have utilized third-party capital among other strategies to help boost returns.”
The rating agency had previously advised re/insurers to focus on M&As as a means of improving credit ratings amidst a tough market, after reviewing factors affecting Western European insurers’ and reinsurers’ credit ratings in 2016, and finding M&As had attributed to many of last year’s company upgrades.
And the M&A trend is expected to continue throughout 2017, although A.M. Best suggested re/insurers would initially spend some time consolidating previous gains.
A.M. Best said last year’s ratings showed; “A slight decline in “aa-” ICRs, but an uptick in “a+”, “a” and “a-” ratings,” which was “largely a result of the major merger and acquisition (M&A) activity that took place in the prior 12 to 24 months, and many of the changes have reflected companies joining larger groups.”
Financial advisory firm KPMG recently added its voice to the array of experts forecasting M&A growth for the global reinsurance markets.
KPMG analysts said insurance industry mergers and acquisitions could see a hike this year after 84% of companies surveyed said they had 1-3 M&As in the pipeline.
Out of the 200 global insurance industry leader participants surveyed, one-third said adapting their business model to deal with the emerging market space was a key motivator for M&A activity.
KPMG Global Lead Partner for the U.S. Insurance Deal Advisory, Ram Menon, commented; “Insurers are clearly hungry for good M&A opportunities, they are focused on transforming their business and operating models, and even with geopolitical uncertainties, they are aggressively looking at deals that can help meet their objectives.”