M&A makes more relevant businesses: Charman

The reinsurance industry will likely see more merger and acquisition (M&A) activity in the coming years as competitive pressures within the sector increase, according to speakers at the Standard & Poor's Ratings Services' 30th Annual Insurance Conference this week.

Competitive pressures including weakening profitability, steadily flowing alternative capital, pricing pressure, and persistently low investment yields mean that a mixture of M&A and strengthening underwriting will be the keys to keeping the sector viable while satisfying investors' appetite for bigger returns, executives said.

One of the commentators on M&A was John Charman, chief executive of Endurance Specialty, which is currently attempting to execute its own $3.2 billion high-profile acquisition bid for Aspen Insurance, which has so far been rejected by the Aspen board.

Charman said there are two views of M&A. One's positive in that it's seen as the best use of capital to strategically deploy to "create a more relevant, stronger business, but much better prepared and able to deliver profitability that shareholders require."

But on the flip side, he noted: “As an industry, I'm horrified. My view is that I'd rather deploy capital in a strategic way and be well prepared for a change in the marketplace on both sides of the balance sheet.”

A conference survey of delegates revealed that 51 percent of attendees believe there'll be active M&A in the next year, with as many as five major transactions.