In highlights from the First Monday series, A.M. Best VP Robert DeRose, along with Senior Financial Analysts Greg Reisner and Mariza Costa, discuss the M&A trend among global reinsurers and the desire for scale and relevance.

For some reinsurers, Mr. Reisner says M&As are part of a strategy, while others see it as an “ultimatum” because current strategies are not working. In a soft market, Mr. DeRose says companies disadvantaged by a lack of diversification and global reach are finding it necessary to implement an M&A strategy to remain competitive.

Mr. DeRose says excess capacity is creating a competitive environment and putting pressure on earnings. With the consolidation that occurred among brokers a few years ago, brokers have more power. As a result, reinsurers are looking to gain scale so that they can gain influence in the market. With “shrinking reinsurance panels”, cedents are looking to do business with companies with strong balance sheets and the ability to offer a greater variety of products. There is increased pressure on niche reinsurance companies to be closer to the customer and offer greater broader capabilities.

“The tier-one reinsurers will remain tier one reinsurers”, Mr. DeRose says. “It’s the second tier where we are starting to see consolidation happening…to move up to the first tier. And in the third tier, that is where the greatest need for consolidation.

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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