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A.M. Best: Low interest rates spurring on reinsurance M&A | Canadian Insurance
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A.M. Best: Low interest rates spurring on reinsurance M&A

Smaller reinsurers and brokers are most likely to suffer from the takeover deals.

M&A activity in the reinsurance sector in growing due to low interest rates, which make it easier to borrow money that can finance deals, says A.M. Best in a new report. Poor investment returns and the current soft market are also encouraging takeovers.

Companies hope mergers or takeovers can increase their market share and efficiency, and diversify both geographically and by product.

In the reinsurance market, “brokers are establishing smaller panels of reinsurers, with expertise and experience in particular lines of business, and the size of a company¹s balance sheet is increasingly being seen as a way to strengthen negotiating positions with intermediaries,” says John Andre, A.M. Best group vice president.

Consolidation can improve a company’s competitive position, but also carries significant execution risks, the report points out. Attempting to expand a niche business to other markets too quickly has resulted in downgrades and insolvencies, especially after the last significant soft market from 1998-2002.

A.M. Best also suggests smaller reinsurers and brokers are most likely to suffer from the takeover deals.