Bermuda shows challenges of M&A, says Fitch

Recent events concerning Bermuda-based AXIS Capital demonstrate the challenges of reinsurance M&A, according to Brian Schneider, senior director of insurance at Fitch Ratings.

In a commentary for Fitch Wire, titled ‘Reinsurance M&A stalls amid macroeconomic risks, volatile claims’, Schneider noted how, in April, it was reported that AXIS was looking to sell its “sizeable, but underperforming” reinsurance business after several years of repositioning the portfolio to reduce volatility and improve profitability.

“The company eventually abandoned the sale in June due to limited market interest and instead decided to discontinue its property reinsurance business to significantly reduce its catastrophe exposure,” Schneider wrote.

In a similar vein and also in April, AXA XL said that its reinsurance unit was not for sale.

“This followed persistent reports since 2021 of potential buyers looking to acquire it, with Covea among those thought to be interested. However, AXA XL has significantly reduced its property catastrophe exposure in recent months,” Schneider wrote.

In addition, the French Ministry of Economics and Finance announced plans in May to sell a minority stake in CCR Re, the open market reinsurance arm of French state reinsurer CCR.

“CCR Re was reorganised into a standalone company in 2016 to write open-market reinsurance business, including an international portfolio, and does not have a full government guarantee. The partial sale should also help CCR Re to expand and diversify its capital and premium base,” Schneider wrote.

M&A transactions in the global reinsurance sector will be limited into 2023 amid investor concerns over macroeconomic risks and heightened catastrophe losses linked to climate change, he said.

“We expect reinsurers to prioritise pricing, risk management and organic growth rather than M&A as they contend with the implications of the economic slowdown, high inflation and volatile financial markets. Even if the reinsurance market hardens enough for higher premium rates to generate significantly better profitability, we do not expect a wave of interest in acquiring reinsurers in the near term.”