Insurance chief executives expect mergers and acquisitions in the insurance industry to increase soon. A panel discussion at the World Insurance Forum said smaller companies may look to merge.
Brian O’Hara, chief executive officer of XL, who moderated the panel, pointed out that few deals had been done in recent years. “We have had a hiatus of five years where there has been no M&A,” he said. “But the criteria for larger companies are different than for smaller ones. The cost of business is high.”
This cost is getting higher because of rating agencies’ increasing capital requirements and risk modellers’ changing models. Bob Cooney, chief executive officer of Max Re, says there may be some mergers among smaller companies.
“Mergers of companies seeking diversification are probably going to happen,” he said. “It is more likely with newer companies because they don’t have liabilities. So combination might be beneficial from a diversification point of view. But I don’t see a lot of bigger companies needing to grow.”
However, Grahame Chilton, chief executive officer of reinsurance broker Benfield, believes bigger companies may succumb to the lure of acquisitions.
“Inevitably there will be some form of consolidation,’ he said. “Some of the bigger companies will not be able to resist the short-term boost.”
John Berger, president of Harbor Point, agreed. He said companies have not needed to make acquisitions in recent years because market conditions were good. But as companies struggle to maintain growth they will look to buy.
“We’re coming off a period where organic growth has been terrific,” he said. “The desire to grow will overwhelm sensibility. If there is a slowdown then we will see acquisitions.”