More M&A may reduce re/insurers on Bermuda


Bermuda could suffer a contraction in the numbers of reinsurers domiciled on the island if the spree of consolidation continues among both reinsurers and insurers.

A smaller number of bigger players could be left fighting for a shrinking pool of premium in the market, some analysts claim.

Ace's recent audacious takeover of rival Chubb shocked the market when the Swiss giant paid a record $28.3 billion for the upmarket property insurer.

Now a rush towards further consolidation across the sector is feared, which could impact adversely on jurisdictions like Bermuda, which has a large reinsurance presence.

“We think that this deal will remove even more premium volume from the reinsurance industry, exerting downward pressure on most reinsurance lines, and stimulating even more reinsurer consolidation,” said Meyer Shields, managing director at merger and acquisition specialists Keefe, Bruyette & Woods (KBW).

He believes consolidation is most likely to occur among commercial insurers which may now have to re-evaluate whether they need similar scale-related advantages to maintain their own competitive positions.

Bermuda has remained robust and resourceful in the face of increased competition in the captive arena. Indeed, KBW typically views large insurer mergers and acquisitions (M&A) as a modest negative due to reserve risk, integration-related potential distractions, and scepticism about whether bigger primary insurers typically produce better underwriting results.

However, the company is optimistic about the Ace/Chubb deal for the three reasons.

It notes what it calls Chubb's well-deserved reputation for conservative underwriting and reserving that enormously mitigates the risk that its reserves will prove inadequate.

It says Ace is adding more already-profitable lines of business to its toolkit, rather than pursing growth and hoping that size and expense synergies generate profits.

Finally, although some employee distraction is probably inevitable, “the combination of an experienced, well-run acquirer and a high-quality, well-run acquisition target limits the likelihood of material bad decision-making”.

Shields added: “There’s some overlap in domestic commercial and high net worth personal lines, but Chubb's main focuses are the US commercial middle market and global professional lines, while ACE's main focuses are large and upper middle-market commercial lines domestically, and a wide array of international commercial and low-to-middle income personal lines.”

M&A, Bermuda, Chubb, Ace, Keefe, Bruyette & Woods

Bermuda Re