MONTE CARLO, Monaco — The influx of third-party capital into the reinsurance industry — notably for U.S. property catastrophe risks — could serve to prompt or hasten merger and acquisition activity in the industry, according to experts gathered at the Rendez-Vous de Septembre in Monte Carlo, Monaco.
Third-party capital could be a “game changer” or at the least a “fierce competitor” for traditional reinsurance markets, said Tony Ursano, CEO of Willis Capital Markets & Advisory in New York.
“We could be one deal away” from a traditional reinsurance company seeking to acquire another in order to regain competitive advantage, he said during a briefing at the meeting of reinsurance executives in Monte Carlo.
Weaker reinsurers will face challenges to compete against those capital providers in the coming years, and this likely will lead to consolidation, he said.
There has been an uptick in M&A activity in recent months, and that is likely to continue as reinsurers struggle to grow, said Paul Schultz, CEO of Aon Benfield Securities, a unit of Aon P.L.C., during a briefing Sunday.
Nontraditional capital a consolidation driver
The reinsurance market has been “ripe for consolidation” in recent years, but that activity has been limited until recently, said Brian Schneider, a senior director at Fitch Ratings Inc. in Chicago, at a briefing Sunday.
The relatively soft market for reinsurance coverage has been one of the factors that has held back M&A activity lately, he noted.
But the influx of new capital into the market from sources such as pension fund investors could hasten consolidation as some reinsurers find they are no longer as competitive in certain lines as they once were, he said. This drive toward consolidation may not occur in the near term but “further down the line,” he added.
If, over time, more of the nontraditional capital begins to flow into Europe, then some reinsurers who are less diversified may be challenged, said Jean-Jacques Henchoz, CEO of reinsurance for the Europe, Middle East and Africa region for Swiss Re Ltd.
He said that this may lead to consolidation among “commodity” players who provide capacity rather than expertise to the market.
Torsten Jerrowek, chairman of the reinsurance committee of Munich Reinsurance Co., said Sunday that his company would not consider acquiring a “fully fledged reinsurance company” but may consider certain very specialized acquisitions where overlap with the company's current portfolio is minimal.
Denis Kessler, CEO Of Scor S.E., said his company's immediate plans did not include acquisitions in the property/casualty reinsurance sector. But that does not mean Scor would not consider acquisitions if they were suitable, he said.
He noted that in the U.S., midsize insurance market mergers and acquisition activity was beginning to pick up because of a need for critical mass.
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