July 31, 2018 by Greg Meckbach
Mergers and acquisitions will likely be a topic of discussion for mid-market reinsurers, executives with a large European reinsurer suggest.
Efforts by large reinsurers to improve productivity will put “more pressure” on mid-sized and smaller reinsurers “to have this strategic question of consolidation in their future,” Mark Kociancic, chief financial officer of Paris-based SCOR SE, said July 26 during a conference call announcing the firm’s financial results for the six months ending June 30.
Kociancic was asked by a securities analyst whether he anticipates a “major consolidation” in the reinsurance industry in the coming quarters.
For reinsurers, Kociancic replied, there are “benefits of scaling with respect to pricing power and economies of scale for absorbing costs, whether it’s regulatory burden or technological burdens.”
SCOR officials did not say their firm is planning a merger or acquisition, nor did they name any reinsurers that might.
Fitch Ratings categorizes reinsurers as small, medium or large. The property and casualty insurers that Fitch considers “large” are the Big 4 European reinsurers (SCOR, Hannover Re, Munich Re and Swiss Re), Berkshire Hathaway and the Lloyd’s market.
Among the reinsurers described by Fitch as mid-market are Toronto-based Fairfax Financial Holdings, the corporate parent of OdsysseyRe. Mid-market reinsurers with Canadian branches include Transatlantic Reinsurance Company, Everest Re, PartnerRe, Aspen, XL Group plc and Axis Capital Holdings Ltd., among others. There is nothing currently in the public record to indicate these companies are interested buying or selling.
Hamilton, Bermuda-based Axis Capital, which writes both reinsurance and commercial primary specialty lines, completed its acquisition last year of Novae Group plc, a London-based insurer and reinsurer in the Lloyd’s market. The deal was valued at the time at nearly 480 British pounds. The pound closed July 30 at Cdn$1.71.
In 2015, XL Group acquired Catlin Group Ltd. for US$4.1 billion. The following year, XL-Catlin moved its corporate headquarters from Dublin, Ireland to Bermuda.
Also in 2016, EXOR S.p.A. closed its US$6 billion acquisition of PartnerRe Ltd., a Bermuda reinsurer and commercial primary insurance carrier with a Toronto branch office. PartnerRe’s board of directors had originally agreed to a merger with Axis Capital. But in the end, PartnerRe got acquired by EXOR (which effectively controls both Fiat Chrysler Automobile and the maker of Case and New Holland construction equipment) because EXOR made a more lucrative offer to PartnerRe shareholders.
In a deal that closed July 18, 2018, Validus Holdings Ltd. (whose operations include mid-market reinsurer Validus Re) was acquired by New York City-based American International Group Inc. A year earlier, Fairfax closed its acquisition, valued at nearly US$5 billion, of Switzerland-based insurer and reinsurer Allied World, which has a Canadian branch.
Three years ago, Endurance Specialty Holdings Ltd. merged with Montpelier Re Holdings Ltd., in a deal valued at US$1.8 billion.
“Further consolidation in the global reinsurance segment is likely to continue, which, if done prudently, should help improve the efficiency of the market’s overall capacity and lead to greater operational discipline,” A.M. Best company Inc. said in 2017 in a report.