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A.M Best observes ‘huge amount’ of reinsurance merger and acquisition activity


September 25, 2015   by Canadian Underwriter


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2014 was a “very tough” catastrophe year for Canadian insurers, while mergers and acquisitions are “on the minds” of managers for global reinsurance firms, analysts for A.M. Best Company Inc. told Canadian insurance professionals Thursday in Toronto.

“All of a sudden in 2014 and 2015 we are seeing a huge amount of M&A activity” in the global reinsurance sector, said Gale Guerra, senior financial analyst for Oldwick, N.J.-based A.M. Best, during the ratings firm’s 2015 Insurance Market Briefing – Canada at the Sheraton Centre.

Loss ratios in Canadian property insurance peaked in 2013, A.M. Best Company Inc. reported

In a special report on global reinsurance published earlier this month, A.M. Best cited several examples, including EXOR S.p.A.’s agreement to acquire PartnerRe Ltd. Pembroke, Bermuda-based PartnerRe – which has a Toronto branch office and writes reinsurance and commercial primary specialty coverage worldwide – announced Aug. 3 it terminated a merger agreement with Axis Capital Holdings Ltd., which had been announced Jan. 25. Shareholders of PartnerRe – which is traded on the New York Stock Exchange – have yet to vote on the proposal to be bought by EXOR, a Turin, Italy-based investment firm whose holdings include a significant minority of Fiat-Chrysler Automobile.

A.M. Best also cited the acquisition of London-based Lloyd’s insurer Brit PLC by Toronto-based Fairfax Financial Holdings Ltd. Fairfax – which also owns Toronto-based Northbridge Insurance and Stamford, Conn.-based OdysseyRe – last June sold 29.9% of Brit to Ontario Municipal Employees Retirement System (OMERS).

Related: Profits for Canadian p&c insurance companies endure despite challenging market conditions: A.M. Best

Others examples of M&A activity included:

•The acquisition of Platinum Underwriters Holdings Ltd. by RenaissanceRe Holdings Ltd., completed March 2;

•Endurance Specialty Holdings Ltd.’s agreement, announced March 31, to acquire Montpelier Re Holdings Ltd.; and

•XL Group Plc’s acquisition of Catlin Group Ltd. which was completed May 1.

“Companies basically want to add scale, size, and also extend their reach globally,” Guerra said Thursday at the market briefing in Toronto.

A.M. Best also reports that catastrophe bond issuance, for property and casualty risks, was US$8.3 billion in 2014, up 13% from US$7.3 billion in 2013.

“This market is dominated by U.S. wind and earthquake, European wind and Japanese earthquake and typhoon,” Guerra said.

Also speaking at the briefing was A.M. Best senior financial analyst Joel Silverthorn, who commented on the Canadian P&C market.

In a recent report, A.M. Best reported the combined ratio for the Canadian P&C industry was 100.7% in 2010, 99.1% in 2011, 96.2% in 2012, 99.8% in 2013 and 98.5% in 2014.

Related: Canadian auto personal accident benefits loss ratio highest since 2010: A.M. Best

Those ratios exclude results from the Lloyd’s Canadian branches and Insurance Corporation of British Columbia, the crown corporation with a monopoly on compulsory auto coverage in the province.

A.M. Best also reported the loss ratios (excluding Lloyd’s and ICBC) for both commercial and personal property.

The loss ratios in commercial property were 62.1% in 2010, 70.5% in 2011, 68.7% in 2012, 78.5% in 2013 and 66.4% in 2014. The loss ratios in personal property were 63.9% in 2010, 68% in 2011, 59.9% in 2012, 71.7% in 2013 and 63.8% in 2014.

“One of the telling things that you will see is 2013, where Canada had its worst catastrophe year ever,” Silverthorn said, adding that in 2014, Canadian insurers “had a very tough cat year, but it was a different type of tough year, because it was frequency.”

By contrast, 2013 had severe catastrophes, Silverthorn said, alluding to floods in southern Alberta (including downtown Calgary) in June and a thunderstorm July 8 in Toronto that resulted in power failures and heavy flooding. Those events ranked first and third respectively, on a list of costliest natural disasters in Canadian history, the Institute for Catastrophic Loss Reduction reported in 2013. The 1998 ice storm – which topped the list before June, 2013 – is now in second place.

More coverage of the A.M. Best’s 2015 Insurance Market Briefing – Canada

Canadian auto personal accident benefits loss ratio highest since 2010: A.M. Best