Validus bought up by AIG
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According to a survey of Bermuda:Re+ILS readers the market will see an increase in M&A activity over the year.
Merger and acquisition (M&A) activity will likely increase in 2018 according to an exclusive survey carried out by Bermuda:Re+ILS.
We asked our readers to answer the following question: With AIG's acquisition of Validus Holdings, do you think that M&A activity in 2018 will increase, stay the same, or decrease?
An overwhelming 84 percent of respondents said that activity would increase, with just five percent saying that it would decrease and the remaining 11 percent saying that it would stay the same.
Asked to explain their comments, one reader said that M&A activity was already likely to increase given market dynamics, whilst another said that conditions are ripe, and that a high profile deal like AIG-Validus will push those considering or leaning towards a similar move to do so.
“The few reinsurers left that are similar in size to Validus are finding it more difficult to maintain a high single digit ROE due to current market conditions,” wrote one reader. “In my opinion they will look at all their options and may need to give in to M&A.”
Another reader said that scale is still a key need for success in this market and those without it will not be able to survive as standalone entities.
Others agreed with this point. One said that: “Growth is needed and acquiring it is quicker and healthier. Small players looking to be more relevant and for economies of scale.”
Another said that there is a lot of uncertainty in the marketplace and that therefore: “The future is for bigger business units. The giants want to grow.”
“We have already witnessed a number of acquisitions,” said a respondent. “This will put pressure on other large players to bulk up or risk getting marginalised.”
Other reasons cited included the arrival of Solvency II and that the fact that there is too much capacity in the market, whilst another reason cited was that the level of capital vs demand is driving consolidation.
The recent US tax reform, which saw the corporate tax level fall, was mentioned as another possible driver. One reader commented that: “Bermuda companies have lost much of their attractiveness by virtue of the BEAT [base erosion and anti-abuse tax] provisions in tax reform, and they will become targets for acquisition and candidates for consolidation.”
On the other side of the coin the small number of people who said that M&A activity would decrease had their own reasons for thinking this.
One reader said that the pool of companies is shrinking because of all the M&A, so it must slow down at some point. Another said that: “There will be more divestment and separation decisions than M&A, [there is] too much over valuation for underperforming franchises at this moment.”
Finally just one reader commented about the market staying the same, and even then the answer was a qualified one: “Will decrease in the live sector, but will increase in the run-off sector.”
As we enter February all eyes are on the market to see what happens.
Bermuda:Re+ILS, M&A, activity, readers, survey, consolidation,