9 September 2013 Reinsurance

Priority of growth could trigger M&A activity

Challenges around how to achieve growth are increasingly on the minds of top executives in the reinsurance industry, said Aon Benfield co-CEO Dominic Christian at a press conference in Monte Carlo yesterday.

“If you did a word search of what was on the top 50 CEO’s minds you would find that growth is the second most important concern,” Christian said. “What’s interesting is that it was fourth last year. Growth and how we embrace growth now in the marketplace is very interesting, indeed.”

Paul Shultz, CEO of Aon Benfield Securities, said that mergers and acquisitions (M&A) would be a focus for companies looking to expand. He explained: “As the industry struggles to grow, M&A will be a valuable tool. Stock buybacks will decline and we will see a continuation of hedge funds entering into permanent capital activities.”

According to Christian, opportunity for growth exists in the traditional property catastrophe reinsurance market, in countries like Chile, Canada and China. Even Europe can present opportunity for growth, although not with the guarantee of profitable growth. Christian also recommended that reinsurance players with ties to convergence capital look towards the public sector.

While traditional catastrophe excess-of-loss reinsurance is a large and crowded market – with, according to Aon’s statistics, 110 participants and $21 billion of premium – 10 percent of premium is generated by government schemes. Christian sees the introduction of new capital into the reinsurance space as an opportunity for both parties to grab hold of publicly held risk and premium.

He explained: “What this new capital allows us to do is think much more extensively about the amount of capacity and how it is that governments can transfer much of the risk they currently hold to the private market.

“When we approach governments they want to see a total understanding of risk transfer, not just reinsurance understanding. This is something that the new capital can address, not least because much of that capital is brought through by people with broad experience with risk.

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