M&A will continue to shape industry, say reinsurance execs in year-in-review

23-12-2016

The year 2016 may well be remembered for the implications of some of the big mergers and acquisitions (M&A) that have taken place this year, especially with so much Asian money continuing to pour into the industry—and 2017 could see more activity, changing the industry even further.

As 2016 drew to a close, Bermuda:Re+ILS asked a number of re/insurance executives for their opinions on the most important developments in the re/insurance industry in 2016 and what they expect to see in 2017. The full range of comments from these executives can be read here.

A number identified M&A as having changed the landscape in 2016 and added that further deals might emerge in 2017.

Leila Madeiros, senior vice president, deputy director and corporate secretary at the Association of Bermuda Insurers and Reinsurers (ABIR), said: ‘2016 saw the continuing trend of M&A activity and the sustained effort in our industry to reduce expense ratios and grow business in a tough environment.

‘By all reports, 2016 was more of the same and it seems that the lack of any significant change is the catalyst for the surge of interest in technology and how it will shape our industry going forward.’

Arthur Wightman, insurance leader at PwC Bermuda, and Matthew Britten, insurance partner at the firm, noted that in their experience 2015/16 has been one of the ‘busiest and most exciting periods’ in the insurance, reinsurance and global risk sector’s history for M&A.

They said it is not only the volume of deals that has been significant but also the scale and high profile of the companies involved. They note that the following deals have all been significant for the market: ACE/Chubb ($28 billion), Tokio Marine/HCC ($8 billion), Exor/PartnerRe ($5 billion+), Mitsui/Amlin ($5 billion), XL Catlin ($4 billion), Fairfax/Brit ($2 billion), and Willis/Towers Watson ($8 billion).

‘Also of significance were the underlying drivers and pricing of transactions including the parallel increase in market and execution multiples, non-traditional capital ‘behind the scenes’, public company deals, the prevalence of Japan, the breadth of Chinese capital, and hedge fund re activity,’ they said.

They added that PwC expects the scale of transactions to fall heading into 2017, but still expects M&A activity in the sector to continue—and evolve in nature—shifting from ‘mega deals’ towards revenue enhancement, non-traditional capital and structuring opportunities.

Other market participants agreed. Damien Smith, director of underwriting at Hiscox Re, noted that M&A has been a significant development this year. ‘Continuing M&A activity plus new entrants, notably Chinese reinsurer startups, has been a recent development,’ he said.

Kathleen Reardon, CEO of Hamilton Re, also anticipates more deals in 2017.

‘In the Bermuda market, M&A activity will continue as carriers seek to curb expenses and create efficiency strategies and as investors look for attractive opportunities to maximise their capital. Recent deals such as Sompo’s acquisition of Endurance and Fairfax’s purchase of Allied World, are notable for the generally ‘hands-off’ approach new owners are taking with their acquired carriers. It’s too soon to tell whether this signals a trend,’ she said.

Senior executives from companies including PwC, Brit, the ABIR, Hamilton Re, Hiscox Re and the Bermuda Monetary Authority participated in the examination of 2016 and look forward to 2017. To read the full transcript of their thoughts and comments, please click here.

ABIR, Bermuda, Insurance, Reinsurance, M&A, Asia-Pacific, PwC Bermuda, Hedge fund, Hamilton Re

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