MOODY’S FORESEES MORE REINSURER M&A ACTIVITY TO COME

Moody’s Investors Service said Tuesday that the operating environment for global reinsurers will continue to deteriorate, leading to a rise in mergers and acquisitions in the sector. The rating service’s quarterly “Reinsurance Monitor” noted that only half of the reinsurers that the company follows reported higher profit in 2014, despite the year-on-year decline in catastrophe losses and the benefits derived from the strengthening US dollar. Still, reinsurers’ operating environment is deteriorating, as property catastrophe reinsurance pricing - the most profitable line historically - continues to drop in the face of readily available low-cost alternative capital, primary insurers’ greater retention of risk, shrinking reinsurance panels, rising ceding commissions on quota-share treaties and low interest rates, Moody’s said. When faced with a “buy versus build” decision, reinsurers are leaning toward M&A because they lack the time “to build new platforms from scratch”, the report said. Continued consolidation in 2015 will not solve the sector’s fundamental issues but it will enable firms to expand scale and diversify as well as “provide more opportunities to improve profitability by eliminating redundant costs”, it said.