News
he seeds of the recent merger between XL and Catlin were planted some three years
ago when the leaders of the firms concluded that consolidation was inevitable and looked to get ahead of the game, Stephen Catlin, executive deputy chairman, XL Catlin, told delegates at Guy Carpenter’s annual Baden-Baden symposium yesterday (Sunday October 18). In a session called ‘Consolidation: who wins
they do from the inside,” he said. “We are like a swan, moving gracefully on the surface but paddling like hell underneath the water.” He ran delegates through some of the
the race for scale?’ Catlin walked delegates through his first-hand experience of mergers & acquisitions (M&A), discussing both Catlin’s acquisition of Wellington in 2006 and the more recent deal between XL and Catlin. Catlin said that in a conversation with Mike
McGavick, the chief executive of what was XL Group, some three years ago, they agreed that consolidation was inevitable and would start in around two years. The two executives spoke privately about a
potential deal for some 18 months before they involved anyone else. “We wanted to make sure the principles of how it would work were thought through and that we shared the same key values,” he said. He admitted that consolidating the two companies had not always been easy. “Things probably look better from the outside than
lessons he had learned in relation to M&A, including that across all industries, research shows that more than two-thirds of acquisitions do not deliver value to shareholders in the long term. The first reason for this is that the price is
wrong, which in the case of re/insurers usually means the reserves are short. The second reason is companies are not integrated quickly enough. “Case studies
show that companies
19.10.15 MONDAY
Post-deal integration vital to success: Catlin T
Nick Frankland Other should
integrate 75 percent of operations in the first year and the rest in the second,” Catlin said. “When we bought Wellington, we aimed to
do 75 percent within six months, to give ourselves room for manoeuvre. In fact, we did 85 percent in six months, but the last 15 percent took every bit of that final 18 months and was tough to achieve.” He stressed that, when it comes to M&A,
it is not a case of one size fits all, and not all deals will work for all companies. “I believe consolidation is inevitable and it will continue in this industry for several years,” he said. “But it is not right for everyone. There must be a strategic reason behind it and execution is key.”
in the industry has led to an increase in the need for specialist
outsourcing services including
operational consulting, or audit and compliance. That is the recent
industries. “Certainly we experience of Artur
Niemczewski, chief executive of Pro, a service provider focused on the insurance and reinsurance
see a
rapidly growing interest in Pro’s services,” he said. “This is driven not just by the M&A, but by the overall pressure on revenues and margins.” He said a key talking point in Baden-Baden will
be less pure M&A and its implications and more how companies can achieve attractive returns on capital, given the dramatic increase in capital being deployed in the reinsurance and insurance sector. “M&A is only a part of it,” Niemczewski said.
“To paraphrase Darwin, it is the most adaptable who survive, not the Tyrannosaurus
rex. Our
The most adaptable will survive, not T. rex P
ressure on revenues and margins combined with the rise in mergers & acquisitions (M&A)
competitive speakers agreed sentiments. Introducing the
with these session, Nick
Frankland, CEO, EMEA, Guy Carpenter, warned of the pitfalls of M&A and the tough lessons the industry should recall. He reminded delegates of the downfall of Gerling Global Re—once one of the world’s biggest reinsurers, the demise of which can be traced back to its acquisition of Constitution Re in 1998. “We saw a similar spate of M&A in the
latter half of the 1990s and some spectacular failures following that,” Frankland said. John Doucette, chief underwriting officer,
Everest Re, added that M&A is not suitable for every company and is not necessary for reinsurers that already boast a global reach. n
industry is fundamentally different from how it was 10 years ago. The meteor has landed in the form of oversupply of capital accepting lower returns for higher risks. The question now is: are you going to be the dinosaur or the mammal?” He said that M&A is one way of seeking advantage
through economies
of scale, hence the increased merger activity. Other forms of competitive advantage include product innovation, increased client value and loyalty, or superior risk:return underwriting. “Our job at Pro is to help our clients to be
the most adaptable and be successful for the future,” he said. Where M&A does take place, companies need
to be aware of the pitfalls around regulatory issues. “Step one is always a regulatory approval of the deal itself,” Niemczewski said. “Step two, though, and a key value driver, is achieving capital efficiency. This is both a regulatory and a rating agency issue.
16 | BADEN-BADEN TODAY | DAY 1: Monday October 19 2015
Artur Niemczewski “Pre-merger the firms might have been using
different solvency models. Inevitably the merger synergies include capital release or redeployment where there is an improved diversification between combined books of business. The regulatory case needs to be compelling, however, and make the best use of the solvency calculations. “Merged companies often also re-examine
their portfolios, and a sale of a non-core portfolio might release significant amounts of capital, which can be redeployed for growth. The Pro team specialises in particular in helping companies identify non-core legacy books of business and extracting value from these.” n
www.intelligentinsurer.com |
www.bermudareinsurancemagazine.com
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