M&A to continue booming - Aon

Low organic growth and the need for scale are driving a boom in reinsurance mergers and acquisitions.

There were £30bn deals in the first half of 2018 compared to just $12bn over the same period last year.

Aon Securities chief executive Paul Schultz said large deals were a feature of the recent M&A activity, with the biggest being AXA’s $15n acquisition of XL Catlin.

A major driver for the XL Catlin deal was AXA gaining product and geography diversity, and other reinsurers were thinking the same.

He said: “We see growing excess capital levels, organic growth continues to be challenged and we are seeing limited opportunities for organic growth.

“M&A, the inorganic tool, allows further diversification on a product and geography basis and brings more scale to the companies.

“For all of those reasons we expect this trend to continue on an elevated basis as we move forward.”

Mike van Slooten, co-head of Aon’s market analytics team, said firms were running more efficiently.

He gave examples of access to business, operating efficiency and capital efficiency as ways that firms are increasingly looking to optimise.

Van Slooten was optimistic on the outlook for reinsurers, saying they had stood up well to difficult market conditions.

He added: “From a ratings agency perspective the environment is fairly stable.

“I think the pressure on earnings is certainly focussing minds and the way that the industry is responding through consolidation activity is something that the regulators are watching.

“But I think that generally we have got an industry that has performed very well in the wake of what happened last year. “We still see a lot of capital in the industry moving forward and we think that this bodes well for reinsurance buyers at the upcoming renewals.”