Reinsurance mergers ‘helping to maintain’ high valuations: Willis Re

Mergers and acquisitions in the reinsurance sector are “throwing up unexpected combinations” while the market for offshore energy wind reinsurance, in the Gulf of Mexico, is softening, the reinsurance division of Willis Group Holdings plc suggested in a report released Wednesday.

“Mergers and acquisitions activity continued in Q2 105 after an active Q1” Willis Re noted in its 1st View report released July 1. Willis Re referred to three recent announcements:

•The acquisition, completed May 1, of Catlin Group Ltd. of Hamilton, Bermuda by Dublin-based XL Group plc;

•A proposal to merge Axis Capital Holdings Ltd. with PartnerRe Ltd.; and

•An agreement by Toronto-based Fairfax Financial Holdings Ltd. – originally announced Feb. 17 – to acquire commercial insurer Brit plc of London.

Brit offers a wide variety of property, casualty and energy coverages and operates in the Lloyd’s market. Fairfax Financial subsidiaries in Canada include Federated Insurance and Northbridge, while in the United States Fairfax owns OdysseyRe, Zenith National Insurance, Crum & Forster and United States Fire Insurance Company, among others.

PartnerRe and Axis Capital Holdings announced Jan. 25 the boards of both companies are recommending the companies merge. Shareholders of companies – both of which are based in Bermuda and have Toronto offices – are scheduled to vote July 24 on the proposal. Both firms write reinsurance and commercial lines.

EXOR S.p.A. has also offered to acquire PartnerRe and is recommending PartnerRe shareholders vote against the proposal to merge with Axis Capital.

“Despite the unappealing short-term outlook for nearly all reinsurers, M&A activity is helping to maintain the current high valuations,” wrote John Cavanagh, global CEO of Willis Re, in the latest 1st View. “However, some of this activity is throwing up unexpected combinations, making it difficult for reinsurance buyers to judge the value to them over the medium-to-longer-term of some of the potential merged entities. It is important for those driving M&A deals to articulate a clear message about the value they can deliver to their clients, as opposed to the current focus on the value to each company’s own shareholders and management.”

1st View is published three times a year. In the most recent issue, Willis Re commented on several different segments of reinsurance, including marine.

“The Gulf of Mexico Offshore Energy Wind renewals also experienced further softening of rates due to severely depressed oil prices, shrinking demand and extreme overcapacity although conditions have held,” Willis Re noted.

“With the North Atlantic Hurricane season now underway, the June 1 and July 1 2015 renewal season offers reinsurers some hope that even if the predicted low level of hurricane activity is realized, the outlook for 2016 might not be quite as bleak as may have been inferred from the recent January and April 2015 renewals,” Cavanagh wrote in the introduction to 1st View.