In a briefing the rating agency AM Best said it expects larger M&A deals to continue as many triggers fan the flames of consolidation.
According to Mathew Mosher, Senior Vice President at AM Best Rating Services, the consolidation typically seen in the insurance market as a result of tough operating conditions has given way to mergers of larger equals.
"Historically you always saw 'white knight'-type deals where larger, stronger companies would come in and purchase a company that might be struggling, which helps them further develop their market share and further develop their markets overall," he said.
"What AM Best is seeing now is much more of a movement to very strong companies partnering together to leverage the strengths that they have with the industry constituents that they deal with, including the capital markets and the brokers, as well as further expanding their footprint with the strengths that they have together," he added.
AM Best said this year has seen several deals whereby two insurance companies with already strong underwriting acumen, acknowledged brands and the ability to innovate through changing client needs in the evolving global economy join forces.
AM Best said the increased size and scale of the new entities grants them improved purchasing power to 'significantly' influence reinsurance terms and conditions, enhance their access to alternative capital and put them in a stronger position in relation to brokers.
AM Best said it expects to see a continuation of such M&A activity with insurers focused on underwriting fundamentals and the accumulation of insurance risk.
"These transactions will allow companies with strong underwriting operations to leverage that strength in their relationships with brokers, reinsurers and capital market participants. This will further differentiate the cost structure of those companies, with savings falling to the bottom line or 'reinvested' in the business by passing any incremental savings back to the market," it said.
"This new round of M&A activity clearly points to a long-term shift in the operating environment of the insurance industry. The capital markets are more and more willing to take on insurance risk through various approaches. However, they are looking for the right partners and possessing strong underwriting fundamentals is key," it continued.
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