22 March, 2018 09:45
Photo : Freepik
A host of factors made it so that the interest for mergers and acquisitions persists with insurers and reinsurers, according to the firm credit rating FitchRatings. Among these, the firm notes the competitive pressures continued, the effect of the tax reform u.s. and the losses related to disasters by 2017.
“The increased scale and scope resulting from mergers could increase the resilience of companies in the face of market challenges, including price competition and the weakness of investment returns,” says Fitch. She adds that the execution of acquisitions and the integration of the businesses may pose a risk on the profitability.
Strong competition on the market
Fitch said that the sale of several smaller insurers and reinsurers that are less diversified in response to an extension of the strong competition on the market, which has inhibited the profitable deployment of capital. What’s more, the tax reform increases the attractiveness to the United States and could encourage companies to increase their presence in the country and to improve their competitive position by using mergers and acquisitions.
Conversely, the firm notes that the opportunities for a better growth of income and adequacy of rates may reduce the interest of companies vendors find a partner with which to merge. “The increase and stabilisation rates are expected in response to disasters by 2017 could reap premiums growth and an improvement in profits of the underlying in 2018. An overall economic growth also leads to an increase in demand for coverage, ” explains Fitch.
Fitch says that mergers and acquisitions may be beneficial to insurers and reinsurers by increasing their scope, by diversifying their profile to offer a better profitability. However, the risk associated with such an operation carried out by a very poor strategy may counterbalance its benefits, ” warns the firm.