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London market M&A activity expected to proceed in 2016

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Mergers and acquisitions among London market insurers and reinsurers likely will continue in 2016, according to Fitch Ratings Ltd. in London.

In its London Market Insurance dashboard — 2016 Outlook, Fitch said that a desire for smaller insurers and reinsurers to increase scale, “partly to reduce operating costs and improve diversification, spurred M&A activity throughout 2015 and is likely to be a driving factor in 2016.”

Fitch said that “there could be continued appetite from Asian investors, who are seeking to buy positions in new territories and (re) insurance lines.”

An expected continued fall in reinsurance rates across many classes of business likely will result in a deterioration in the attritional loss ratio of London market insurers to 54% in 2015 and 2016 from 52% in 2014, Fitch said.

While there have been signs that the pace of rate decreases has begun to slow in some reinsurance lines, Fitch said it does not believe a floor has been reached and said that pricing pressure will remain 2016.

Non-catastrophe lines, such as casualty, are expected to see further rate decreases as insurers and reinsurers move into these lines for diversification, Fitch said.

Fitch said it believes that the London market will play a key role in the development of a market for cyber insurance in Europe.

But it added that “cyber attacks have the potential to cause significant losses due to substantial aggregation risk and their increasing sophistication.”

Overall, Fitch said it believed that most London market insurers' balance sheets could withstand a sizeable catastrophic loss within the next 12 to 18 months.

The rating agency said its outlook on the sector remained stable.