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Lack of remaining targets could limit reinsurer mergers

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Further merger and acquisition activity in the reinsurance sector cannot be ruled out, but any deals likely will not be transformational, Fitch Ratings Ltd. said Monday in an analysis.

In its report, “European Reinsurance Market Finely Balanced,” Fitch said it expects more M&As in part because current market conditions limit organic growth prospects, but it added that the number of deals may not match recent levels given the reduced number of London market and Bermudian reinsurers seeking to consolidate.

It's unclear whether stock market turbulence and political developments will stem the flow of capital from the Asia-Pacific region looking to invest in overseas reinsurers, Fitch said.

Fitch said the Jan. 1, 2016, reinsurance renewals showed that a pricing floor has yet to be reached. Still, the pace of rate reductions slowed and portfolios renewed by the major European reinsurers had increases in the low single digits.

“Against our expectations, terms and conditions remained stable,” Fitch said in the report. Fitch previously had predicted that terms and conditions would widen at the Jan. 1 renewals.

Fitch said the four largest European reinsurers — Swiss Re. Ltd., Munich Reinsurance Co., Hannover Re S.E. and Scor S.E. — reported an average combined ratio of 90.3% for 2015.

But it said that if results were “normalized” to reflect a more typical large catastrophe loss and reserving year, that average combined ratio would have been 98.5%.

“We view this as highlighting a wider deterioration in market conditions, driven by lower reinsurance prices feeding through to results,” Fitch said.