The need for consolidation will drive M&A

Appetite for reinsurance M&A looks to be on the verge of change, with rising levels of capital market interest and strengthened price tobook values likely to encourage greater pursuit of M&A in the coming eighteen months.

That is the view of David Foley, global practice leader, actuarial and advanced analytics and principal at Deloitte Consulting, who told Bermuda:Re that recent depressed price-to-book valuations had served as an impediment to M&A activity. With reinsurer price to book values on the rise and significant excess capital a feature of the reinsurance landscape, Foley anticipates greater deal activity in the coming months. He said that reinsurers would do well to deploy excess capital for acquisitions, although evidence of traction is yet to emerge.

Foley said that some reinsurers will pursue possible synergies with insurers, with the focus being upon niche business that can complement their existing portfolios. Not that all reinsurers are looking to the insurance market. Foley highlighted a number of players that have divested themselves of insurance operations.

Examining those factors that make for successful M&A, Foley said proper due diligence, paying the right price and integration of acquired entities were key. He said that integration needed to be considered early on, with those participating in M&A needing to pro-actively capture synergies and take-out redundancies.

Foley was one of the Deloitte team behind its recent report entitled Top 10 issues for insurance M&A in 2013. The report detailed a host of challenges to M&A, including macroeconomic concerns, the growing complexity of M&A deals, troubled valuations and the appropriate deployment of capital.

The full report can be found here.