After insurance merger and acquisition (M&A) deals totalling $126bn in 2015, the figure for the first seven months of this year is only $15bn, according to broker Willis Towers Watson, but this could merely be a case of the industry pausing for breath.
High valuations, (2.4x book value when Mitsui Sumitomo bought Amlin for $4.7bn last year), had kept buyers on the sidelines in 2016. Brian Duperreault, chief executive of Bermudan insurer Hamilton, said: “We have a near-zero interest rate environment, investments are not that great, we have a competitive pricing situation”. Pressure on both sides of the business “has almost always led to mergers – you can minimize your cost base, you can get into businesses you did not have before”.
Duperreault said Hamilton would continue to look into the possibility of buying a European insurer if the price was right, but emphasized: “I am not going to do it out of desperation.”
Ratings agency Fitch also said this week that weak profitability would lead to a fresh M&A wave in reinsurance next year.
One factor in favour of more M&A is that the fall in the value of sterling post-Brexit has made London-based players more attractive.
With Amlin, Brit and Catlin gone as independent operations, Hiscox and Lancashire are seen as potential targets.
However, Swiss Re CEO Christian Mumenthaler said in Monte Carlo this week that his company did not currently have any acquisition plans, because the economic justification was not there. “We already are a big player,” he said, implying that the need to buy was restricted to those who needed to seek bigger size.