Bermuda-based underwriters may be looking to make "vertical acquisitions" up the value chain through the takeover of managing general agents, managing general underwriters or captive agents.

That is according to PricewaterhouseCoopers LLP's (PwC) 'US Financial Services M&A — Analysis and Trends' released last week, which revealed that it was unlikely that large mergers and acquisitions would be done by US insurers this year due to a lack of sellers currently seeking to divest.

The report found that while "behind-the-scenes" discussions were taking place, there were few natural disasters or "market-changing" events in 2009, allowing property/casualty insurers to rebuild their balance sheets and strengthen their market position.

Furthermore, PwC said that improved investment income had shifted some insurers from being undercapitalised to overcapitalised, meaning that fewer sellers needed to divest. "Those in a more distressed position who have survived so far are now in better position to divest in a timely manner and avoid a fire sale situation," New York-based PwC analysts said in the report.

But the report said that there could be some consolidation among property/casualty insurers and brokers as a result of excess capacity and residual soft pricing.

It said that underwriters, mainly those in Bermuda, may increase interest "in vertical acquisitions along the value chain, through the acquisition of managing general agents, managing general underwriters or captive agents".

Federal regulation, health care changes and international tax reform were also factors that have slowed M&A activity, the report found. It added that the impact of such reforms was difficult to predict and some companies could wait and see how those will impact business before doing a deal.