Continued consolidation in the London market is being driven by the changing needs of customers and brokers, along with tighter capital rules for underwriters.

The latest example is Toronto-based Fairfax Financial Holdings Ltd.'s $1.88 billion February acquisition of Brit P.L.C., making Fairfax one of the top five underwriters in the Lloyd's of London market. It also includes the deal the month before when Dublin-based XL Group snapped up Catlin Group P.L.C. for $4.28 billion.

The consolidation enables the market players to present brokers and their clients what they want: larger, more capable insurers and reinsurers with greater portfolio diversity, experts say.

The Lloyd's market gives insurers access to an A financial-strength rating, as well as a strong network of international licenses, including ones in high-growth markets such as China and Brazil, and an efficient capital structure.

“The Lloyd's market has proven very attractive to international insurance groups and also private equity” buyers, said Catherine Thomas, London-based director of analytics at A.M. Best Co. Inc. and head of the rating agency's London team.

Larger deals often are done to achieve synergies and cost savings that eventually pull through to pricing for the customer, said Alessandro Santoni, New York-based director of property/casualty mergers and acquisitions at Towers Watson & Co.

To that end, Catlin was the largest single managing general agent at Lloyd's, as measured by gross written premiums.

Meanwhile, Fairfax Chairman and CEO Prem Watsa, a value investor who models himself

after Warren Buffett, has been expanding Canadian Fairfax's footprint in Europe, recently inking deals to buy much of QBE Insurance Group's assets in Eastern Europe. Brit gives Fairfax a London specialty underwriter in a diverse group of industries, including marine, energy and equestrian.

“Like the Catlin-XL transaction, the deal rationale underpinning the … sale of Brit to Fairfax is one of increased scale, a broadened product offering, adding Brit's complementary specialty business to Fairfax's portfolio and of increased relevance with brokers,” Jonny Urwin, London-based analyst with UBS A.G., said in an investor note.

Brokers assembling smaller panels in the London subscription market also have driven insurers to get stronger by combining. “The size of a company's balance sheet is being seen as a way to strengthen their negotiating position with brokers,” Ms. Thomas said.

Brokers also see benefits in having larger, better capitalized trading partners capable of offering greater insurance line size and expertise.

“What you are actually doing, hopefully, through these transactions is creating a more financially viable carrier or partner with enhanced capabilities. This has got to be good news for our clients,” said Donald Bailey, New York-based president of global sales at Marsh L.L.C.

“It's clear now that probably just being a really good underwriter is not enough; you do need scale, portfolio diversity and distribution diversity,” Mr. Bailey said.

Like Ms. Thomas, Mr. Bailey also sees deals involving the London market driven in part by customer demand.

“Our clients are looking for long-term, viable partnerships,'' he said. “These transactions tend to represent more of a step in that direction. This should be the very basis of these transactions.''

Brit management also sees advantages for the clients of the London marketplace.

“We believe we should be able to expand our distribution and the ability of customers to access our specialty Lloyd's products,” Mr. Cloutier, Group CEO of Brit, said during a media call last week to discuss the company's results.

Fairfax and Mr. Watsa are known to operate at arm's length from acquired companies.

“They tend to buy the entity and let it run itself, so overall I would expect not a lot of changes with respect to the way that Brit is managed. That's the way he's done it in the past,” said Brian Schneider, Chicago-based senior director of insurance at Fitch Ratings Inc.

One change could be less business conducted through Lloyd's, Fitch London analysts Anna Bender and Martyn Street said in an investor note.

“For transactions involving one or more Lloyd's players, the greater scale of the merged entities could make it more attractive for groups to underwrite directly through their own brand,” according to the Fitch investor note.

No matter the outcomes from the spate of recent deals, experts expect the evolution of the London market to continue, in part through further consolidation.

“I'm certain there will be” more deals, Mr. Bailey said. “The volume and magnitude of those transactions is an open issue.”

For her part, Ms. Thomas said: “What we have been observing over the past few years is some dynamics in the specialist property and casualty sector changing, and we see that as encouraging merger and acquisition activity in the London market.”