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Merger guessing game

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SAN DIEGO — Merger and acquisitions continue to affect the property/casualty market in general and the excess and surplus lines market in particular, raising the question of which companies will be the next to merge.

Pricing of E&S coverage is expected to remain competitive but stable over the next year as buyers and insurers focus on covering cyber and drone risks.

The biggest topic of conversation at the National Association of Professional Surplus Lines Offices Ltd. conference earlier this month was “who's next on the acquisition scene,” said Alan J. Kaufman, Farmington, Michigan-based president and CEO of H.W. Kaufman Financial Group and Burns & Wilcox Brokerage.

People are speculating as to what it means, how it will affect the insurance industry and what company is next, he said.

“Taking that down a layer,” they are also concerned about M&As among E&S insurers, Mr. Kaufman said during the Sept. 9-11 conference in San Diego.

Scott Barraclough, executive vice president of Mount Laurel, New Jersey-based Admiral Insurance Co., said in addition to excess capital boosting M&As, “a large number of wholesalers ... are positioned to be sold. They're looking for a way to cash out.”

Discussing Ace Ltd.'s purchase of Chubb Corp., David J. Lupica, Alpharetta, Georgia-based division president of Ace Commercial Risk Services, said the companies “match up very well.” When looking “at where Ace was very strong and where Chubb was very strong ... there's not a lot of overlap” in combining them, he said.

More M&As are “inevitable,” said Mac Wesson, Dallas-based president and chief operating officer of U.S. Risk Insurance Group Inc. “Companies strive for more market share and for greater efficiencies the smaller companies cannot enjoy.”

Andy Swenson, New York-based chief operating officer of specialty products at Zurich North America, said while the E&S market is growing at a faster rate than the overall commercial sector, “that pace is slowing,” which he said is a “function of the competition and the efficiency that we are continuing to generate.”

“There's an awful lot of appetite for business still from underwriters, although I suspect that we may be seeing a marketplace where traditional insurers are now seeing reserves eroded to the point where they're going to need to start putting additional reserves in place,” said Darren Warkcup, London-based insurance specialist of facilities at JLT Re, the reinsurance brokerage arm of Jardine Lloyd Thompson P.L.C.

Soft markets, however, offer “great opportunity for product development to cover new risks,” which “tend to be more complicated,” said Thomas P. Ruggieri, New York-based president and CEO of Cooper Gay Swett & Crawford Ltd.

Among newer coverages getting greater attention are those for drone and cyber risks.

“Underwriting companies are trying to get their heads around what they want to do with drones, and in reality trying to figure out what is the future of drones” as a commercial use, Mr. Barraclough said. “Is this a little bit of a fad, or is it here to stay?”

As for cyber coverage, Mr. Lupica, who specializes in firms of 500 and fewer employees with less than $25 million in revenue, said Ace has been attaching cyber coverage to its businessowner policies.

“We're recognizing a small business does not need the same cyber coverage” as a large business and it is preferable “to sell them what they need at a more favorable price,” he said.

“People are looking at new ways to distribute” products, said Marcel Ricciardelli, Philadelphia-based senior vice president of environmental and engineering at Allied World Insurance Co. “How do we get more efficient?”

During the conference attended by more than 4,000 people, Gilbert C. Hine, president of San Antonio, Texas-based McClelland & Hine Inc., was elected president for the 2015-2016 term.