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MONTE CARLO, Monaco — Though it's unlikely to halt declines in rates, more merger and acquisition activity in the reinsurance and insurance marketplace is coming, say experts.
There will be a concentration of the marketplace caused, in part, by M&A activity, said Denis Kessler, CEO of Paris-based Scor S.E., at the Rendez-vous de Septembre reinsurance meeting in Monte Carlo, Monaco, this week
The competitive nature of the reinsurance market presents challenges particularly for small and midsize reinsurers, who have to merge to gain scale and diversification, said Brian Schneider, a senior director at Fitch Ratings Ltd. in Chicago.
Factors such as the Solvency II risk-based capital regulatory framework, which will come into force in Europe in 2016, also will play into the diversification push, driving M&A activity, said Clive O'Connell, partner at law firm Goldberg Segalla Global L.L.P. in London.
The consolidation will result in competition for reinsurer signings, said Nick Frankland, London-based CEO of the Europe, Middle East and Africa operations of Guy Carpenter & Co. L.L.C.
This should work to the cedents' benefit as they seek the best coverage and panel, he said.
And though the current level of M&A is unlikely to halt rate softening, said Martyn Street, a senior director at Fitch in London, it is expected to create a stronger second tier of reinsurers, according to Torsten Jeworrek, board member responsible for reinsurance at Munich Reinsurance Co.
Companies that have merged over the last 18 months represent about 8% of the dedicated capital in the reinsurance sector, said David Flandro, head of analytics at JLT Re, the reinsurance arm of London-based Jardine Lloyd Thompson Group P.L.C., in New York.
While some of that 8% will remain in the sector, some may be returned by share buybacks and the like, and the capital “may top out a little,” Mr. Flandro said.
A return of capital to shareholders after any M&A likely will not dramatically change the soft market, according to Bryon Ehrhart, CEO of Aon Benfield Americas in Chicago.
But some smaller companies may find that growing through a merger gives them more of a voice, he said.
Some of the deals being undertaken will help insurers and reinsurers “consolidate their place at the table,” said Stephen Skeels, a partner and national head of valuations at Mazars U.K. in London.
But the prices being paid for some acquisitions are very high, and in future cases such valuations may cease to be economical for the buyer, he said.
LONDON — Reinsurers are operating within a challenging environment of fierce competition fueled by ample capacity and changes in buying habits, but are finding ways to diversify and manage their risks, according to Standard & Poor's Corp.