M&A deals may not yield desired value News


Ad proof


sector may do little in themselves to help firms cope with the harsh reality of falling prices and low investment returns, increasing the risk that acquisitions will not generate the value investors anticipate long term, Fitch Ratings has warned. “We expect market conditions to remain


H


weak in 2016, while company valuations have remained stubbornly high. This increases the risk that future acquisitions will not generate long-term value—a risk that will only grow as the pool of potential targets shrinks,” Fitch said. It said the recent acceleration in deals is no


surprise given the combination of weak pricing and overcapacity. But it warned: “We have said for some time that consolidation could have some limited benefits for the sector as a whole by reducing capacity.” Fitch explained that the main driver of deals appears to be an attempt to


recent eadline-grabbing mergers and acquisitions (M&A) in the reinsurance


improve scale and diversity, which can be positive for firms in the long term. “If M&A activity continues into 2016 and


earnings continue to fall, as we expect, there is a risk that acquisition prices will increasingly appear disconnected from the reality of a tough market environment,” the rating agency said. “This adds to the already significant


execution and integration risks associated with mergers. Risks are particularly high in transactions where diversification is the driving rationale, as the acquiring company is entering an area where it may not have expertise and the chance of making mistakes is higher. “On the other hand, a combination of two


struggling companies in the same reinsurance segment will have less execution risk but could offer very limited benefits. Mergers that are seen to be poorly conceived could create problems if reinsurance buyers become reluctant to place business over the longer term.”


pace


13.09.15 SUNDAY


It noted that while M&A has been particularly brisk among Bermuda-based reinsurers, they are also the most exposed to fierce competition from the growth in alternative capital, which, along with the absence of major loss events, has helped push premium rates down. “Although the


of premium rate


reductions for bellwether property lines slowed to single-digit levels at the June and July 2015 renewals, rates are still falling. Bermuda-based reinsurers’ investment portfolios also tend to be shorter-dated than those of the biggest European reinsurers, meaning that they have reinvested sooner into lower-yielding assets,” Fitch said. “We


expect Bermudian companies to


remain among the most active in looking for deals as we believe alternative reinsurance has gained widespread acceptance and there is therefore no obvious catalyst for a significant reduction in this side of the market.” n


R E NOWN E D E X P E R I E N C E | I N S U R A N C E COL L A T E R A L


ROBERT BILODEAU


rbilodeau@wilmingtontrust.com +1 212-941-4411


ROBERT QUINN


rgquinn@wilmingtontrust.com +1 212-941-4420


TODD WINCHEL


twinchel@wilmingtontrust.com +1 212-941-4406


Experience is the best partner for insurance collateral solutions.


At Wilmington Trust, we pride ourselves on being a premier provider of corporate trust services. With our team’s quick response time, more than 15 years of experience focused solely on insurance trusts, and hands-on KYC process, we’re well equipped to handle your needs.


For more insight on our insurance collateral solutions, contact one of our experienced professionals or visit wilmingtontrust.com/insurancecollateral.


REINSURANCE TRUSTS | ILS TRUSTS | CAPTIVE TRUSTS | RETROCESSION TRUSTS | DEDUCTIBLE TRUSTS | SURETY TRUSTS


Affiliates in: Arizona, California, Connecticut, Delaware, Florida, Georgia, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Pennsylvania, South Carolina, Texas, Vermont, Virginia, Washington DC, Amsterdam, Cayman Islands, Dublin, Frankfurt, London, and Luxembourg.


Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation (M&T). Investment management and fiduciary services are provided by Wilmington Trust Company, operating in Delaware only, and Wilmington Trust, N.A., a national bank. Loans, retail and business deposits, and other personal and business banking services and products are offered by M&T Bank, member FDIC. ©2015 Wilmington Trust Corporation and its affiliates. All rights reserved.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28