Help

BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

Economies of scale propel reinsurer mergers

Reprints

More mergers and acquisitions are expected among reinsurers because of underlying pressures of scale affecting the industry, according to analysis by Aon Benfield, the reinsurance brokerage arm of London-based Aon P.L.C.

Conditions have been right for M&As for several years, Mike Van Slooten, head of market analysis of international at Aon Benfield, said during a briefing Monday on the Aon Benfield Aggregate report analyzing results of the world’s largest reinsurers.

It was expected that mergers would be seen among smaller, monoline property catastrophe players seeking to diversify and gain scale, Mr. Van Slooten said.

He said mergers of larger insurers and reinsurers, such as the proposed XL Group P.L.C. and Catlin Group Ltd. merger, likely are defensive moves in part due to additional M&A activity expected in the coming months.

Size is becoming increasingly important for reinsurers for several reasons, Mr. Van Slooten said.

Reinsurers need a certain scale to successfully leverage third-party capital, he said. Size also can bring economies of scale when certain costs, such as regulatory costs, are increasing.

The report said the capital available to underwrite reinsurance business totaled about $575 billion in 2014, up from $540 billion in 2013.

Of that total, $64 billion was from alternative capital sources vs. $50 billion in 2013, according to the report.

Although the rates for coverage provided by alternative capital, such as catastrophe bonds, currently are broadly decreasing, there still is plenty of capital from sources such as pension funds “queing up to get into this class,” Mr. Van Slooten said.

Although many reinsurers have been downbeat about rates, there is still growth overall in gross written premiums, Mr. Van Slooten said.

The 31 reinsurers that Aon Benfield tracks for its report had gross written premiums of $311 billion for 2014, a 9% increase over 2013.

Of that total, $226 billion was for property/casualty business, up from $202 billion in 2013, according to the report.

There has been a shift by some reinsurers towards proportional business and longtail business to counteract the effect of declining rates in some other lines, notably property catastrophe, Mr. Van Slooten said.

Read Next

  • Reinsurance M&As won't fix soft pricing: S&P

    Standard & Poor's Corp. has said that the ongoing merger & acquisitions trend in the reinsurance sector would not halt the softening of reinsurance pricing or reduce competitive pressures, Artemis.bm reports.