- World Economic Forum(WEF) Global Risks Report 2019 highlights worsening international relations hindering action across a growing array of serious challenges
- Comments on Brexit vote impasse
- Allianz Risk Barometer highlights cyber and concerns around Brexit as as top risks in UK
- Willis Re's Summary of Natural Catastrophe Events 2018 report estimates insured losses from major natural catastrophes at around $71.5bn
- BIBA highlights opportunities for business in 2019 Manifesto
- UK Comprehensive car insurance prices fell by 6% in 2018 says Confused.com/ Willis Towers Watson analysis
- Insurance Europe concerned that the European Commission’s proposal for an ePrivacy Regulation could hamper insurers’ ability to offer innovative insurance policies to consumers expired
- ArgoGlobal collaborating with broker Axieme and digital platform Jobby in Italy to respond to a need for on-demand, pay-as-you-go insurance for temporary and short-term workers expired
- LV= General Insurance successfully deploys Guidewire Core and Data solutions in the largest transformation the business has ever undertaken expired
- Marsh announces that it had placed more than 10,000 risks in 2018 through Placing Platform Limited(PPL)-over 15,000 in total expired
- ZhongAn and Grab to establish joint venture company to enter the digital insurance distribution business in Southeast Asia expired
- Greenlight Capital Re becomes largest shareholder in Chicogo-based MGU AccuRisk expired
12th September 2018
Fitch says consolidation of the global reinsurance industry will continue
Consolidation of the global reinsurance industry will continue, as intense market competition and capital levels drive M&A, while smaller players lacking scale and diversification see further pressure on growth and profitability, Fitch Ratings says. Marginalized companies are increasingly incentivized to explore M&A, as they face the challenges of operating in a difficult market environment. These factors, coupled with the impact of the US tax reforms and the record 2017 catastrophe losses, should support M&A activity for the sector into 2019.
The potential benefits of consolidation for reinsurers include revenue diversification, economies of scale, improved return on capital and an enhanced competitive position. However, 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. Reinsurers are also focusing on cost efficiencies and expanding penetration in developing markets. Recent reinsurance acquisition multiples have ranged from 1.1x - 1.6x book value, with revenue multiples ranging from 0.7x - 1.9x.
Acquisitions providing alternative capital platforms in order to diversify revenue streams have grown tremendously in recent years. Aon Securities estimates that alternative capital deployment has increased by 10% from end-2017 to $98bn at end-1H18, which is nearly double the $50bn amount at end-2013. Markel's acquisition of Nephila(terms not disclosed) allows it to further expand into the more fee-based insurance-linked securities(ILS) sector, solidifying its position as the leading manager of ILS funds. It follows Markel's December 2015 purchase of CatCo, a retrocession and reinsurance investment specialist, demonstrating the further convergence of traditional (re)insurance and alternative capital market reinsurance.
Larger deals, while more difficult to justify on a cost-saving basis, highlight the trend of gaining scale and diversification in order to stay relevant in a competitive marketplace. AXA's sizeable acquisition of XL Group for $15.2bn(1.5x book value) is expected to close by year-end. XL will become part of a very strong, larger multi-line organisation in combining with AXA, the largest insurer in Europe by gross premiums written. This acquisition follows AIG's July 2018 purchase of Bermuda-based Validus for $5.4bn (1.6x book value), providing AIG with a profitable reinsurance and Lloyd's market platform. Furthermore, both deals provide access to established alternative capital platforms that neither company has currently.
The acquisition of smaller, capital-constrained businesses is reflected in lower acquisition multiples. Apollo Funds' $2.6bn acquisition of Aspen Insurance(1.1x book value) reflects the distressed nature of its reinsurance business, and its outsized catastrophe losses in 2H17. Maiden Re was also being marginalized, which forced its break-up and sale to run-off specialist Enstar Group Limited for $308m, with the renewal rights on this reinsurance business being sold to Transatlantic Re. This effectively puts Maiden Re out of business, as it will only serve as a captive reinsurer for AmTrust, which has been dealing with financial difficulties of its own.
Fitch Trends(313 articles)