Fitch: RenRe Deal Could Spark Further M&A
RenaissanceRe’s agreement to acquire Platinum Underwriters Holdings could spur merger and acquisition activity among reinsurers, Fitch Ratings says.
RenaissanceRe recently announced it will acquire Platinum in a deal worth approximately $1.9 billion, with the transaction between the two Bermuda-based re/insurers expected to close in the first half of 2015.
“Reinsurance M&A has been limited recently due to a lack of willing sellers and inherent uncertainty tied to large acquisitions. But PTP’s limited market position in an increasingly competitive market influenced management’s decision to seek a buyer,” the ratings agency said.
“This proposed transaction is not a blockbuster deal because PTP is a small reinsurer and has been shrinking its business considerably in recent years, but it may provoke a shift in market attitude to embrace more consolidation as a strategic option to combat the stress in the reinsurance market.
“Record capitalisation among traditional reinsurers and the growing capacity provided by alternative capital providers are softening reinsurance pricing and broadening policy terms and conditions, with no catalyst for a reversal in sight.
“The RNR-PTP deal is a combination of reinsurers, but many reinsurers are focused on diversification into primary markets, which could promote a broader variety of acquisitions.
“Achieving scale and increasing diversity through acquisitions can be beneficial because absolute capital size remains an important competitive factor in the reinsurance industry. Capital size is particularly meaningful for reinsurers, as the purpose of reinsurance is largely to absorb earnings volatility on behalf of clients.
“A larger reinsurance organisation also has an increased opportunity and a greater financial ability to lead reinsurance programmes and therefore be in a better position to evaluate and select risks, and negotiate pricing and terms and conditions.
“In the current competitive environment, stronger, more established reinsurers are maintaining capacity at the expense of smaller, weaker companies,” Fitch added.
“A certain amount of consolidation would be a modest positive for the reinsurance sector, as a reduction in the number of reinsurers and associated underwriting capacity would be likely to ease competitive pressures.
“For the acquirer, a consolidating transaction could be a credit positive or negative as M&A deals present a unique set of risk exposures. This includes significant execution and integration risk, which is especially relevant when there are cultural differences between buyer and target.”
If so, this will mean more job losses for largely educated middle class Bermudians. And no replacement jobs in the pipelines.
yup.
It appears these senior management care more about their pockets, than the job security of employees.
No, they care about doing their fiduciary duty to maximize shareholder value as officers of the company
They’re basically legally required to
Not saying it’s right/wrong, but it’s the way it is
truth.
In addition to disliking… could you explain why?
They are directly responsible to shareholders, the owners of the company, not to employees. If you think that any company feels that it’s primary responsibility lies with it’s employees, you’re living in a fantasy land. The entire reason for companies to exist is for the profit of the owners. That’s reality. It’s not wrong, it just is.
1 senior manager’s compensation = 20 employees compensation…
It may lead to a greater number of opportunities. It may just lead to a stronger company that stays in business longer for the employees who’s jobs don’t get made redundant. Every business decision isn’t based on solving Bermuda’s economic challenges. Some folks just want to make money for their shareholders.
Imagine that.