According to analysts at J.P. Morgan, mergers and acquisitions (M&A) could be making a return to the Lloyd’s space.
Historically, there was a lot of M&A activity in this market, with analysts highlighting that the number of listed Lloyd’s players reduced from 10 to 3 in 2007.
J.P. Morgan analysts believe this trend might be resurfacing, following recent comments from the CEO of Mitsui Sumitomo during an interview with The FT, who stated, “acquisitions could be back on the table”.
This possible resurgence is influenced by recent developments: Japanese insurers are being asked to reduce their cross shareholdings, prompting discussions on how these companies will utilise the extra money from selling those shares.
While the CEO mentioned they do not expect to see anything materialise immediately, it is likely that major Japanese insurers will consider M&A in the Lloyd’s space, especially since they already have existing businesses in that market.
J.P. Morgan analysts suggest that combining these different companies could help save money, raise capital, and possibly secure better deals on reinsurance purchasing.
Overall, the Lloyd’s market is seen as attractive for M&A, given companies there tend to have strong returns on equity (ROE) compared to similar companies elsewhere.
In the past, M&A activity in Lloyd’s has mostly involved the largest syndicates. J.P. Morgan discusses potential future M&A contenders, stating, “with Beazley ranked #1 on premium and Hiscox #4, we see these as the clearest targets but we also believe that given Lancashire’s buildout since 2018 the business is a far more likely take-out target than at any point in its history”.
