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Dec 2022

Global: Reinsurance M&A stalls amid macroeconomic risks, volatile claims

Source: Middle East Insurance Review | Sep 2022

M&A transactions in the global reinsurance sector will be limited into 2023 amid investor concerns over macroeconomic risks and heightened catastrophe losses linked to climate change, Fitch Ratings (Fitch) said in a recent report. “We expect reinsurers to prioritise pricing, risk management and organic growth rather than M&A as they contend with the implications of the economic slowdown, high inflation and volatile financial markets,” the report said.
 
Even if the reinsurance market hardens enough for higher premium rates to generate significantly better profitability, Fitch said it does not expect a wave of interest in M&A activity for reinsurers in the near term.
 
“For traditional reinsurers, opportunities to increase pricing and improve profitability could develop if rising interest rates lead to lower supply of alternative capital to the reinsurance market, most of which is through insurance-linked securities (ILS),” said the report.
 
Persistently low interest rates following the global financial crisis drew many new investors to the reinsurance market in search of better returns than were available from financial markets. However, the report pointed out that ILS investors have pulled back from the market following several years of above-average catastrophe losses. “A continuation of this trend could help to extend the hardening market and would clearly be positive for traditional reinsurers’ profitability,” said Fitch. M 
 
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