m-a-istock-537908812-5
iStock/ Designer491
6 November 2018Insurance

M&A: Five reinsurers will be left, says Kessler

The property/casualty reinsurance sector will merge to end up in a similar structure as the global life reinsurance sector, SCOR CEO Denis Kessler said during a Nov. 6 S&P Global Ratings insurance conference in London.

In the life reinsurance space there are 6 leading players providing 80 to 85 percent of the total capacity, Kessler explained. He suggested that this is how the P&C reinsurance sector will look like after a wave of consolidation.

“If you take any global industry in the world, there are always around 5 leading players,” Kessler said, pointing to the airlines or telecoms industry. If the market is global you need to have a certain size to be able to cover the world and benefit from economies of scale, he explained. Therefore, there will be maybe 5 or 6 leading reinsurers in the world in the future dominating the market with some opportunities left for specialised reinsurers, he said.

The P&C space is much less concentrated than the life reinsurance sector not least because of the Bermudian players which appeared in the 90s, Kessler explained.

The deal value of global insurance mergers and acquisitions (M&A) surged to €37 billion in the first six months of 2018, with many mega deals pushing the value to its highest first-half total since the financial crisis, according to a recent report by Willis Towers Watson and Mergermarket.

Property and casualty (P&C) led the way with 44 deals, followed by the life sector with 22 deals, while there were 11 in composite and seven in reinsurance.

The report cited the changing nature of business models as a key driver for deals, with regulatory pressures and more businesses seeking to return to their core strategy, as other factors.

Quite a few large M&A deals have involved Bermudian players recent. End of October 2018 Bermuda-based RenaissanceRe Holdings agreed to acquire its competitor Tokio Millennium Re (TMR) for approximately $1.5 billion from its parent company Tokio Marine Holdings.

In July American International Group (AIG) completed its acquisition of Bermuda-based Validus Holdings for an aggregate transaction value of $5.56 billion. Earlier in March, AXA agreed to buy Bermuda-based XL Group for $15.3 billion.

For relatively new companies such as Bermudian reinsurers to reach the level of sophistication to finance the necessary innovation, to be able to cover the world as a multiline reinsurance provider is hard, so the answer is to merge, Kessler suggested.

Many of the new reinsurers were concentrating on CAT as the returns were quite high, but now they are trying to diversify away from it because of low rates, Kessler explained. When they expand into casualty and liability the returns may disappoint and this is further complicated by the different time dimensions, he added.

“The leading players today will be the leading players tomorrow,” Kessler said. In order to ensure that SCOR will be among the leading players in the future, the French reinsurer is investing in technology, he said. “We can generate productivity and efficiency gains if we are able to integrate science and technology in the reinsurance processes to the benefit of insurers,” Kessler suggested.

Get all the latest re/insurance industry news with our daily newsletter -  sign up here.

More of today's news

Insurance contracts no Brexit threat: EIOPA

SCOR’s Kessler sees ILS reach 25% of reinsurance capacity

Don't miss our insurtech email newsletter - sign up today

Already registered?

Login to your account

To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.

Two Weeks Free Trial

For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk


More on this story

News
14 November 2018   Citing Charles Darwin, SCOR CEO Denis Kessler believes that only the companies most responsive to change will survive in an increasingly complex and dynamic operating environment for reinsurers.
Insurance
31 October 2018   The deal value of global insurance mergers and acquisitions (M&A) surged to €37 billion in the first six months of 2018, with many mega deals pushing the value to its highest first-half total since the financial crisis.
Insurance
25 April 2019   US insurance sector deal value dropped in the first quarter of 2019 compared with the same three months in 2018, research from PWC revealed, despite a “surge” in the number of M&As among property and casualty companies.