Mergers and acquisitions (M&A) activity in the reinsurance industry is expected to continue, driven in part by a desire for companies to gain better access to alternative capital platforms, according to Fitch Ratings.
Consolidation provides a range of potential benefits for reinsurers, including revenue diversification, economies of scales, improved return on capital, and enhanced competitive position, but several recent acquisitions seem to indicate that alternative capital access is increasingly becoming a key factor, Fitch said.
For example, Markel’s recent acquisition of Nephila Capital Ltd., the largest investment manager of catastrophe and insurance-linked securities (ILS), solidified the firm’s positions as the leading manager of ILS funds, following its 2015 purchase of retrocession and reinsurance investment specialist CatCo.
The addition of Nephila’s US $12 billion assets under management brings Markel’s pro forma assets under management to $19 billion, which represents 20% of the total market share, Fitch said.
Furthermore, Fitch noted that AXA’s acquisition of XL Group and AIG’s acquisition of Validus earlier this year also provide access to established alternative capital platforms that neither company had previously.
Fitch claimed that gaining better access to alternative capital platforms could improve reinsurers’ enterprise-wide risk management and ultimately lower their cost of capital.
French reinsurer SCOR has also been embroiled in merger talks recently after rejecting an unsolicited €8.3 billion ($9.6 billion) offer by mutual insurance company Covéa and denying reported discussions with PartnerRe.
Smaller M&A deals also included Aspen’s acquisition by alternative asset manager Apollo Global Management for $2.6 billion, Maiden Re selling its North America business to Enstar, and Enstar withdrawing its sale process for StarStone and Atrium.
