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Experts see no let-up in mergers trend

Merger mania in the insurance industry shows no sign of letting up, according to a major investment management firm.

Analysts at US-based Conning said that mergers “picked up measurably” last year — and that activity had continued into the start of 2015.

Conning analyst Jerry Theodorou said: “The rise in insurance mergers and acquisitions activity in 2014 was fuelled in part by the perceived need to achieve greater scale by property-casualty and life annuity insurers.

“In the current environment of low interest rates and low economic growth, many insurers acted on the belief that growth objectives could be more readily attained by inorganic rather than by organic means.”

Steve Webersen, Conning director of research, said that the global economic slowdown had scared capital-rich insurers away from large-scale deals.

But he added: “However, five years of slow but positive economic growth have restored that confidence.

“Property-casualty transactions in the US rose 31 per cent in the year, while values rose 52 per cent, driven by buyers' desire for diversification, customer relevance and by consolidation among reinsurers.”

And Mr Webersen said: “In the life-annuity sector, the number of US transactions actually declined, yet the value of these transactions more than doubled as life insurers sought new markets and added to their asset management capabilities.”

In recent months, giants XL and Catlin announced they were to merge operations, while RenRe and Platinum and Axis and PartnerRe said they would join forces — with job losses a side effect of the deals.

But Graham Collis, a director in the corporate department of law firm Conyers Dill & Pearman, said that the rush to combine companies would strengthen the Island's position as a major international market.

Mr Collis said that the three big mergers would create world-class insurers and reinsurers.

He added: “Greater capital, together with cost savings and synergies, will make the combined companies stronger and more competitive.

“It is likely that other Bermuda companies will adopt the current philosophy that bigger is better and seek strategic partners for themselves.”

Ratings agency Fitch said that the merger trend was being driven by a soft market and that Bermuda's traditional, stand-alone property catastrophe reinsurers were most at risk from a flood on new capital into areas like insurance-linked securities.

Mr Collis said that a major disaster would lead to a shortage of capacity and would probably lead to the formation of new Bermuda insurers and reinsurers — but that was unlikely to be on the same scale as previous major changes in the market.

And he explained that a boom in Bermuda's asset management industry would complement its position as a leading insurance and reinsurance jurisdiction.

He added: “Bermuda has a long tradition as a fund jurisdiction, Its sophisticated investment management infrastructure and excellent reputation among investors are key success factors that play a critical role when sponsors decide where to domicile a fund.

“Bermuda has been successful in attracting complex investment funds and private equity structures. The Island's asset management capabilities have been embraced by leading fund management groups.”

And Mr Collis said: “The Island has been quick to respond to market trends and new products and the government is committed to growing the international business sector.”

RenaissanceRe: The reinsurer's acquisition of Platinum was completed earlier this month

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Published March 24, 2015 at 9:00 am (Updated March 23, 2015 at 8:22 pm)

Experts see no let-up in mergers trend

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