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Reinsurance mergers and acquisitions will be “limited” into next year due to investors’ concerns about macroeconomic risks and heightened catastrophe losses linked to climate change, Fitch Ratings Inc. said in a report released Wednesday.
“We expect reinsurers to prioritize pricing, risk management and organic growth rather than M&A as they contend with the implications of the economic slowdown, high inflation and volatile financial markets,” Fitch said.
Hardening reinsurance rates and increased profitability are not expected to catalyze interest in acquiring reinsurers in the near term. ILS investors have also pulled back from the market following several years of above-average catastrophe losses, and rising interest rates could lead to a lower supply of alternative capital to the reinsurance market, most of which is through insurance-linked securities.
Covea Corp.’s $9.1 billion purchase last month of PartnerRe from Exor is seen as an exception by Fitch.
“The ownership benefit under a group credit approach with Covea, a larger property/casualty, health and life insurance organization,” is “more strategic than that by Exor, an investment company.”
Fitch also pointed to the eventually abandoned effort by Axis Capital Holdings Ltd. to sell its underperforming reinsurance business after several years of repositioning.