M&A on the rise in the UK specialty market
While the UK’s specialty insurance market is showing only “modest” rate increases, mergers & acquisitions (M&A) are on the rise as insurers look for growth, according to EY UK insurance leader Rodney Bonnard.
“The current picture isn’t very rosy amongst specialty insurers, who suffered the costliest year on record in 2017,” Bonnard said.
The Lloyd’s Market for example expects to pay out £4.5 billion in major claims due to significant catastrophe events in 2017 and return on capital at Lloyd’s dropped from 8.1 percent in 2016 to a negative 7.3 percent in 2017.
“This seems to have been a peak however; the first half of 2018 has been benign in terms of catastrophe activity, and forecasters are predicting a return to normal levels of hurricane activity for the rest of the year. Even so, rates have only risen modestly throughout 2018 to date, so we expect the market to have a high degree of focus on the quality of earnings (in the current reporting season) and, in particular, the performance of the ex-catastrophe loss ratios,” Bonnard said.
“On the M&A side, while overall transaction volumes were down in 2017, at just past the halfway mark into 2018 we’ve seen some big global deals in the specialty market. This trend is expected to continue as a means of providing growth opportunities that are currently hard to come by organically. Interestingly, we are not only seeing global players buying access to Lloyd’s and specialist products, but also mid-sized specialist insurance carriers looking to gain scale, as well as a renewed interest from private equity firms,” Bonnard noted.
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