Jobs impact likely as mergers continue
A major insurance firm with a Bermuda operation has been bought out in a $1.88 billion swoop — the latest in a series of mergers set to affect Island businesses.
Brit Group — which opened an office on the Island around 18 months ago — has been taken over by Toronto-based Fairfax Financial Holdings.
And yesterday economist and consultant Peter Everson predicted that the trend would lead to job losses into the middle of next year — as the Island fights to create more employment.
Mr Everson said: “I would say for the second half of 2015 and the first half of 2016, it would appear there would probably be net losses rather than job gains in that market sector.”
He explained: “After a merger, the initial consolidation reduces administrative costs and head count through overlap.”
Mr Everson said: “To the extent that jobs are lost, then that makes it that much harder to get new jobs growth because we have to replace the jobs we’re losing as well as creating new ones.”
But he added: “Combined, larger businesses may be better able to expand into new markets.”
Brit — based at Lloyd’s of London — announced in September 2013 it was to open a Bermuda office under former Markel Bermuda executive Joe Bonanno.
The move will give Fairfax at a stroke access to Brit’s major presence in the London market and to its expertise as a global specialty insurer and reinsurer.
The merger is the latest in a series of consolidations in the market affecting companies with a Bermuda arm.
XL Group, now based in Ireland but which started operations in Bermuda in the 1980s, has announced a $4 billion plus merger with Island-based Catlin, which will create a combined company worth about $12 billion.
Axis Capital Holdings is to merge with PartnerRe, which will create a group with market capitalisation of nearly $11 billion, which will make it the world’s fifth-biggest property and casualty reinsurer.
And RenaissanceRe earlier revealed it had struck a deal to acquire fellow Bermuda reinsurer Platinum in a $1.9 million deal.
XL said that the merger with Catlin would allow cost cuts of at least $200 million a year — and that jobs cuts and the merging of offices around the world were likely.
Axis and PartnerRe — whose offices are in neighbouring buildings on Pitts Bay Road — predicted that joining forces would make annual savings of $200 million as well, with job losses across its international operations also likely.
Eamonn Flanagan, an analyst at England-based Shore Capital, said: “Another one bites the dust with the recommended cash bid by Fairfax for Brit.
“The mergers and acquisitions juggernaut amid the Lloyd’s quoted insurers continues with just five players left.”
Mr Everson said the rush to merge in difficult market conditions was “part of the normal market cycle in business”.
He added: “There are periods of expansion, periods of creation of new business and companies. The flip side is there also periods of consolidation where companies are merged to create economies of scale and cut costs.”
And he said — if consolidation did not happen — that companies would struggle to compete, be taken over anyway or go out of business altogether.
Mr Everson added that the growth of new areas such as insurance-linked securities, which include catastrophe bonds, was an example of new business models and one where Bermuda had carved out a significant share of the market.
But he said: “Sadly, it doesn’t provide the same level of jobs per billion dollars of capital as the insurer and reinsurer does.”
The Brit office in Bermuda, in the Waterfront complex off Pitts Bay Road, Pembroke, is understood to employ very few staff. Brit also has other international offices, including in Chicago, Tokyo and Shanghai.
A spokesman for the firm in London said: “Brit will operate as a fairly independent operation under Fairfax. I can’t comment on specifics about the offices. Hopefully, it will be a good deal for shareholders, employees and clients.”
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