ORLANDO, Fla.—There likely will be more reinsurance merger and acquisition activity in the next couple of years as reinsurers seek ways to effectively deploy their capital, say observers.

But, while there may be more deals in the next 12 months than there have been this year, the increase likely won't be dramatic, say reinsurers, intermediaries and others, who discussed the issue at the Property Casualty Insurers Assn. of America's annual meeting Oct. 25-28 in Orlando, Fla.

They note there were just two major reinsurance mergers in the past year: IPC Holdings Inc./Validus Holdings Ltd. and Partner Re Ltd./Paris Re Holdings Ltd.

M&A activity will be “slow and steady” during the next three years, said Andrew M. Appel, chief executive officer of Aon Benfield in Chicago. “I think there'll be a number of transactions if the current environment holds” that will be driven by excess capital, difficulty in getting returns, investor pressure to release capital that has been tied up, and a “general desire to have more security” and more scale in light of the brokerage industry's own focus on consolidation.

“We don't see a flurry or frenzy of deals getting done in the next 12 months,” said William H. Eyre Jr., Philadelphia-based managing director of Towers Perrin's reinsurance brokerage business. “We don't think there's a huge, pressing need for the mergers, and you'd have to have a common sense of purpose, you have to have some element of synergy and chemistry between senior managements, to have increased activity.”

Any deals will be driven by “specific, and perhaps unique, opportunities and perspectives amongst those parties,” said Kenneth LeStrange, chairman and CEO of Pembroke, Bermuda-based En-durance Specialty Holdings Ltd.

“It's got to fit,” said John Andre, group vp at Oldwick, N.J.-based A.M. Best Co. Inc., adding, “Everybody's always worried about legacy issues.”

Hugo Crawley, chairman of the London-based BMS Group, agreed. Any acquisition “is a complex situation where you have to match the cultures of the organizations. You're taking on assets which you obviously have to evaluate very carefully,” making sure there are no toxic assets. And looking at reserves is “always complex.”

The availability of M&A candidates also is an issue. Steven K. Bolland, president of New York-based intermediary Gill & Roeser Inc., said in light of past consolidation, “there really isn't a huge second tier of reinsurers” that are not “making it.”

Thomas Upton, a managing director with Standard & Poor's Corp. in New York, said companies' interest in acquiring new businesses “has been driven more towards acquisition of Lloyd's syndicates and expansion by that means rather than acquiring each other.” He said S&P would be surprised if there is a “big spike” in M&A activity in the immediate future.

More companies may re-evaluate M&A activity to the extent the capital markets open, or there is more liquidity in the market, added Grace Osborne, New York-based S&P managing director and head of North American insurance ratings.

Anthony J. Kuczinski, president and CEO of Princeton, N.J.-based Munich Reinsurance American Inc., said, “Ordinarily, soft markets encourage more consolidation, but I'm not so convinced there are that many companies that have the free capital to make significant acquisitions.”

Any mergers that occur are likely be stock deals, said John Daum, New York-based executive director of Lockton Re, a unit of Kansas City, Mo.-based Lockton Cos. L.L.C. That is “the only way anything would get done,” he said. “Today, there's not a lot of cash out there.”

Mr. LeStrange noted that many mergers are not ultimately successful. “The history of mergers for large acquisitions in our industry is poor in terms of generating appropriate shareholder value and returns for risks attendant to the transaction and, in fact, some of them have been disastrous,” he said.

He said, however, that Endurance, which has completed three significant transactions during its eight-year history, is “constantly on the lookout for opportunities to acquire businesses that further diversify our portfolio, that have the profit potential that we desire, and are a good cultural fit for our company.

“We look at over 100 deals a year, and our hit ratio is about one in 100. You have to be selective. Integrating companies is not an easy matter,” he said.