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Insurer mega-deals forecast to drop off

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Insurer mega-deals forecast to drop off

NEW YORK — No further mega-deals between major insurers are likely at this point, as buyers who can afford them are in shorter supply, says a securities analyst.

Although merger and acquisition activity has picked up over the past several years, there are now fewer buyers for large companies, said Jay A. Cohen, New York-based managing director in the equity research department at Bank of America Merrill Lynch, speaking Wednesday at the Professional Liability Underwriting Society's 2016 D&O Symposium in New York.

Pointing to the deal between Ace Ltd. and Chubb Corp., which was completed in January, Mr. Cohen said while it has been said that if that deal can happen, any deal could happen, “those are just hard deals to do. To sell a company, you need another big company.”

“We're really not expecting a wave of large deals. We tend to think they will be smaller,” Mr. Cohen said.

Discussing pricing, Mr. Cohen said that in the United States, competition for standard lines of business has intensified. If prices are going up in some lines of business, it is not by much, and more lines are going down, he said.

However, “for most companies in the U.S., the markets are still pretty rational. You don't hear about behavior we saw in the late 1990s … but it's clearly in the wrong direction.”

In London, the situation is worse, with more competition and with energy lines of insurance in particular under even more pressure, “given what's happening in the energy world.”

Mr. Cohen said he assumes price changes will lag inflation over the next two to three years which “means the accident year loss ratio should get worse.”

The recent wave of mergers has also left large numbers of insurance-sector employees adrift.

During a keynote address, Patrick G. Ryan, chairman and CEO of Chicago-based Ryan Specialty Group L.L.C., discussed how XL Group P.L.C.'s acquisition of Catlin Group Ltd., and American International Group Inc.'s shrinking, “for the first time in my history, there's this huge number of professionals who are not going to be employed in the industry.”

“One man's problem is another man's opportunity,” and there will be startups that employ some of these people, but there will be fewer people working in the industry, he said.

Mr. Ryan also discussed how some of the capital that has come into the market has already left. However, “My belief is that some of these capital providers are going to do it right,” through arrangements where they provide the capital and partner with others who provide administration, underwriting and distribution, Mr. Ryan said.

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