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M&A activity expected to increase in Bermuda


NEW YORK--Merger and acquisition activity in the reinsurance sector is light, with companies preferring to acquire key executives or individual books of business rather than purchasing whole companies, executives say.

But traditional deals are expected to pick up in volume among Bermuda-based companies, they say.

The executives made their comments during a session at Standard & Poor's Corp.'s 2007 insurance conference in New York last week.

Going forward, "I can see a fair amount of M&A activity happening" in the Bermuda reinsurance marketplace, said John Berger, president and CEO of Pembroke, Bermuda-based Harbor Point Re Ltd., a privately held reinsurer that eventually is expected to go public. "Bermuda is a natural place because it seems that's where the capital goes."

Neill A. Currie, chief executive officer of Hamilton, Bermuda-based RenaissanceRe Holdings Ltd. said he "would be surprised if there weren't at least one or two combinations" taking place on the island in the near-term. Such a move would likely be a merger of a private and publicly traded company, he predicted.

According to Mr. Currie, in a soft market, reinsurers often look for strategic moves to try to attract business. In addition, rating agencies are pushing for diversification, he said.

Still, according to Peter Grant, director and reinsurance sector specialist at S&P, there has been "a lot more talk of M&A" than actual deals being struck in the marketplace.

Mr. Grant noted that when it comes to M&A deals, companies face three main types of risk: strategic execution risk, which refers to whether the move is economically sound; financial execution risk, relating to whether a company can actually raise the funds necessary to purchase another entity; and operational execution risk, which is a measure of how well two companies will integrate.

"There's a whole array of risks to successful acquisitions," Mr. Berger said, and companies should acknowledge that these deals do not work 100% of the time.

There is "a little more of a diversion" towards buying the talented individuals and teams of people instead of running the risk of buying an entire company, said Mr. Currie.

But, the executives say that, for the time being, there may be greater scrutiny of the acquisition of talent, in light of General Reinsurance Corp.'s restraining order against Bermuda-based Arch Capital Group Ltd. to prevent defectors from Gen Re's property facultative team from bringing business to Arch (BI, May 28).