Many firms terming to M&A for diversification and size

Despite a slow start to 2017, ratings agency S&P believes that M&A will be used by (re)insurers to the end of the year as a tool to maintain relevance.

In its recent RatingsDirect report on the subject, S&P highlighted that the trend for all-cash purchases would continue due to a cocktail of conditions that made M&A a viable response to a perpetually soft market.

S&P senior analyst Taoufik Gharib said: “In our view, a number of industry and company-specific conditions have been encouraging for M&A deal activity. The most visible forces have been the prolonged soft P/C reinsurance pricing cycle of the past few years and excess capital in the market.”

He added: “The trend has continued through 2017 renewals, as reinsurance rates decreased across almost all lines of business and regions. Pricing pressures have curtailed the industry’s ability to generate organic growth, and we believe pockets of opportunity are quickly absorbed by early movers. Companies have become increasingly inclined to seek growth through acquisition–a desire partially offset by rising stock-market valuations of targets.”

While announced deal value during the past 18 months has only reached $22bn compared to the $70bn of 2015, S&P says M&A will still be significant.