More Consolidation Expected for Global Reinsurers

While benefiting from limited rate increases in 2018 and 2019, global reinsurance earnings remain under pressure amid continued challenging business conditions, according to S&P, which expects reinsurer mergers and acquisitions (M&A) to continue during the next few years.

The rating agency said pressure comes from "plentiful traditional and alternative capacity, changing cedants' demand, and the commoditization of property risks. Thus, reinsurers want to strengthen their relevance and improve the resilience of their business and financial positions. To achieve this, the industry has employed various strategies, including highly tailored reinsurance solutions, pairing up with alternative capital providers, enhancing digital capabilities, and exploring opportunities to close the protection gap."

S&P said that, while currently in a "temporary lull," reinsurer M&A will continue during the next few years. During the first half of 2019, total M&A deals reached over $20 million, which is below the amount for the same period in recent years, according to S&P.

Reinsurers "with a more narrow business profile or limited geographic footprint will likely either consider M&A or become targets themselves. Further, the ongoing convergence of the insurance, reinsurance, and insurance-linked securities markets through M&A will continue. We therefore anticipate more deals similar to AXA and XL, and Markel and Nephila. Diversification will also continue to drive deals, as demonstrated by China Re's acquisition of The Hanover Insurance International Holdings and RenaissanceRe's acquisition of Tokio Millennium Re," S&P said.