P&C re/insurance M&A expected to accelerate at AIFA

Investors expect the pace of the property/casualty insurance industry consolidation to accelerate, according to Morgan Stanley.

Recent deals include the acquisition of Validus by AIG and XL Group by AXA.

The passage of the US tax reform gives more certainty to deals, according to analysts. In addition, the somewhat ‘disappointing’ Jan. 1 reinsurance renewals could also push some companies to think about their longer-term strategies. Investors are expecting more deals to come, the analysts described the atmosphere at the annual Association of Insurance and Financial Analysts (AIFA) conference.

“We think likely buyers include large US insurers and international multi-line carriers (European and Japanese). Potential targets could include Bermudian reinsurers and US specialty insurers,” the analysts wrote.

In general, pressure on P&C players may rise as increasing yields negatively impact the bond portfolio. Rising inflation could also increase P&C liabilities. Furthermore, P&C companies are more sensitive to rising medical costs and litigation costs. Declining reserve releases is another earnings headwind to the industry, the analysts noted. Investors are concerned that some of the tax ‘windfall’ could be ‘competed’ or ‘regulated’ away. Personal line carriers could be under greater regulatory pressure than commercial line insurers.