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Excess capacity driving industry consolidations

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NEW YORK — Excess capacity across the insurance industry could lead to more industry consolidation, but there may be difficult times ahead, industry executives said.

Lisa M. Butera, Armonk, New York-based senior vice president of Swiss Re Ltd., speaking at the 2015 Professional Liability Underwriting Society D&O Symposium in New York, said she has heard rumblings of more consolidation among Bermuda companies.

Ms. Butera pointed to recent deals in the industry, most recently Dublin-based XL Group P.L.C.’s pending acquisition of Hamilton, Bermuda-based Catlin Group Ltd. for about $4.3 billion. There will be more consolidation, she predicted.

Some insurers “may be thinking they don’t want to be the last one at the dance to be picked, so maybe they should pick a partner,” which makes sense for long-term growth, said Ms. Butera, who spoke during a panel session by industry leaders.

She also said that while some of the earnings results are certainly very good, “some companies are struggling, and those relying on reserve releases for earnings may have some difficulty.”

“It feels a heck of lot like 2000, absent the multiyear deals,” said Brian Wanat, New York-based CEO for the U.S. financial services group of Aon Risk Solutions, referring to the last turn in the market.

“It feels like we’re sitting on a bubble,” which may be attributable to factors including low interest rates and the declining price of oil, Mr. Wanat said. “We’re sitting on something pretty massive here.”

Results have been favorable, with low catastrophe losses, and relatively favorable with relatively favorable reserve development, and all in all the insurance industry is in “pretty good shape,” said Dan Fortin, senior vice president of Chicago-based Berkshire Hathaway Specialty Insurance, part of Berkshire Hathaway Inc.

He added, however, “The icing is not that thick. It think it’s a little bit fragile” if you are looking at current accident-year results,

Meanwhile, with the continued increase in capacity, there will be continued pressure on excess rates, “but that has to give at some point,” said Neal Wilkinson, London-based head of management liability underwriting at Beazley P.L.C.

The session was moderated by James Skarzynski, a partner at law firm Skarzynski Black L.L.C. in New York, who is president of PLUS.

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