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Mergers and Acquisition activity shows no signs of slowing down. Here Assistant Vice President William Pargeans and Vice President Robert DeRose discuss the motivations of insurers, across sectors, to seek out mergers and acquisitions.

According to Mr. Pargeans the life insurance industry is very mature and the only way for insurers to grow in this sector is to buy blocks of business. “In addition there is some new equity coming in…mainly geared towards acquisitions of annuity business, that’s what’s driving the demand. What’s driving the supply is that companies are looking to dispose of underperforming businesses. This in turn frees up capital and allows companies to concentrate on their core business.”

Mr. Pargeans said that “we do think that M&A is going to continue there is a lot of pressure on companies to improve ratios… and dispose of underperforming assets…(in order) to achieve those goals.”.

While there has been an increase in M&A activity in the property/casualty market said Mr. DeRose “the headlines appear to be focused on reinsurance, particularly in Bermuda. What is driving the need for consolidation is the excess capacity in the reinsurance space, which reinsurers recognize.” The reason for the consolidation in the reinsurance space said Mr. DeRose is to gain greater influence of the brokers. Other reasons include: scale, integration synergies, maintaining a primary position in the “shrinking reinsurance panel”, bigger balance sheet and a higher credit rating.

The “monoline focused reinsurers, those that are specialized in property catastrophe business” are experiencing increased pressure said DeRose and where most of the M&A activity has been.

We’d like to thank A.M. Best for their contribution to our program. If you’d like to see more of the First Monday Series, visit the A.M. Best website.

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