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Losses from hurricanes could initiate surge in M&A activity


Losses from last year’s hurricane season, and a potential effort by insurers and reinsurers to seek partners to help absorb those losses, could trigger a wave of mergers and acquisitions in 2018, according to an industry expert.

Writing in a prediction for international law firm Clyde & Co., Andrew Holderness, global head of the firm’s corporate insurance group, said that while M&As have taken something of a back seat in the global insurance industry over the last 18 months, that could change.

“We expect a number of insurance businesses will see their balance sheets come under increasing strain,” Holderness wrote. “This could serve as a trigger for a wave of M&A in 2018 as re/insurers look for partners to help absorb these losses or consider putting their businesses up for sale.”

Losses are still being tallied, but are expected to be in the tens of billions, Holderness predicted.

news.merger.2Brexit could also have an impact.

“Uncertainty, the enemy of deal-making, has weighed heavily on investor sentiment,” Holderness wrote of the past 12 months. “In some markets – notably Europe – uncertainty persists with Brexit acting as a significant brake on M&A activity. Transactions have been overtaken on the corporate agenda by Brexit preparations as companies realize that there is now no time to lose.”

Despite that, growth remains an “imperative” in what is an increasingly difficult trading environment, and, according to Holderness, the situation hasn’t got any easier for insurers over the last six months.

“Investment returns remain under pressure and will likely remain so for some time, despite the interest rate rises in the US and the UK – the first for a decade,” Holderness wrote. “Meanwhile, abundant liquidity in the market means there’s little room for insurers to differentiate on price. And the rise of broker facilities and an increasing number of managing general agents entering the market is putting additional pressure on insurers.”

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