M&A spree won’t ease conditions in reinsurance market

The recent wave of merger and acquisition (M&A) activity in the reinsurance industry will not alleviate the burden of competitive conditions.

This is according to rating agency Standard & Poor’s (S&P), which has maintained its negative outlook on the reinsurance sector.

In its latest market briefing, S&P said that the continuance of pricing declines and a string of mergers and acquisitions (M&A) have highlighted the ongoing challenges faced by reinsurers.

“Global reinsurers have seen the future, and it requires greater scale. Already, some major proposed acquisitions or mergers have roiled the sector over the past few months in a consolidation wave that Standard & Poor's Ratings Services had anticipated,” said the rating agency.

S&P said that this confirms the challenges management teams at global reinsurers are facing in the current market.

“S&P believes competitive pressures will remain heightened in reinsurance, and we don't expect the recent spate of consolidation will alleviate that burden. In fact, we believe this trend toward greater scale highlights how hard it will be for management teams to defend their market positions,” added the rating agency.

According to S&P, reinsurers will be forced to consider changes to their business models, while newly merged reinsurance groups that fail to profitably use their new size and scale or others that fail to adequately defend their business positions could see their competitive position scores--and ultimately their ratings--deteriorate.