Bermuda reinsurers will buy or merge predict analysts
Aspen Insurance, Arch Capital and Endurance Specialty may seek to buy reinsurers after Bermuda-based rivals Validus Holdings and PartnerRe announced takeovers this week, Bloomberg reported
“There’s always been a herd mentality,” said Michael Paisan, an analyst at Stifel Nicolaus. “If you get one or two that all of a sudden become more competitive in the industry through an acquisition, like a PartnerRe will or like a Validus, it tends to force others to follow suit.”
Paisan said Arch, Aspen and Endurance may be looking to acquire rivals. Companies including Montpelier Re, Lancashire Holdings, Max Capital and Flagstone could become targets or merger partners, he said. Publicly traded reinsurers have clustered in Bermuda, where they face less regulatory oversight.
Bermuda heating up
“Mergers and acquisitions are going to heat up on the island,” said Joshua Shanker, a Citigroup analyst.
Billionaire investor Wilbur Ross said in March he is considering buying and combining reinsurance companies with a market value of $1bn to $2bn. “We’re certainly looking,” Ross said, without identifying potential targets. “Most companies are trading at or below their book value.”
Need to be bigger than $3bn
Paisan said: “Capital is king, more so today than it ever has been,” he said. “There seems to be that imaginary threshold of $3bn. You need more than that to be a viable longer-term player in the industry.”
Distinct strategies
There are “more companies than there are distinct strategies and there should be some combination,” said Flagstone chairman Mark Byrne. “A little bit of stirring up the pot, and boards being reminded of what their obligations are in terms of producing shareholder value is a positive thing.”
The firms declined to comment.
