Recent merger & acquisition (M&A) activity is highlighted in the following list of sizeable transactions:
A number of these transactions provide support for the anti-correlation theory, notably Renaissance Re and Platinum; XL and Catlin; Endurance and Montpelier; Axis’ merger approach to Partner Re and the most recently announced behemoth tie-up of Ace and Chubb. All these transactions illustrate the expected deal flow of companies seeking the synergies available through consolidation to address the challenges of soft markets.
However, the consolidation predicted by the anti-correlation thesis does not explain the broader spectrum of transactions such as Fairfax and Brit; Fosun and Ironshore/Meadowbrook; Tokio Marine and HCC and Exor’s counterbid for Partner Re. In each of these cases, the transactions are not driven by consolidation synergies but rather by recognition of the inherent attractiveness of a target’s business model and ability to generate an acceptable investor return on capital despite market conditions.
In addition, while these high profile transactions, in particular the recent offer announcements for HCC and Chubb, have created the impression of a prolific M&A environment, as described above for U.S. specialty markets, the overall number of transactions outside of reinsurance markets has not yet shown a meaningful uptick.
The lower U.S. specialty insurer M&A activity may be in part attributed to rates not having softened as much as reinsurance markets. However, when combined with the varied rationale for transactions beyond market consolidation, it is possible that a shift has occurred in the drivers of M&A that may impact on our expectations of future activity.