The leaders of some of Bermuda’s biggest insurers and reinsurers differ on how to address the currently thriving M&A environment - with some actively pursuing deals in the frothy market and others hoping to benefit from the spoils of any mooted takeover.
While the likes of Aspen’s Chris O’Kane has said his up-for-sale firm is evaluating “many, many” different deal possibilities and players as he looks to capitalise on the bull market for carrier M&A, others have spied an opportunity from the potential fallout.
Aspen rival Axis, for example, has said it is too busy digesting its £477.6mn ($631.1mn) acquisition of Novae to consider another purchase- but reckons that this dynamic serves as more of an advantage than it could initially appear.
Speaking to analysts on the carrier’s first quarter conference call, Axis president and CEO Albert Benchimol said the upheaval that can ensue from M&A activity can cause a firm’s staff and customer to look elsewhere for opportunities.
“Whenever there is any kind of turmoil in any organisation, whether that turmoil comes from M&A or anything else, there is always an opportunity to attract talent or an opportunity to attract new pieces of business,” he said according to a transcript from Seeking Alpha.
That, he said, is because brokers may want to deal with different people. Meanwhile, he added: “We continue to be recruiting top quality talent, and we are looking at a couple of opportunities right now, that were brokered on thinking […] ‘we might want to move this, we might want to move that’.”
“But that’s the everyday job of our business, to try and take advantage of those things. So we will continue doing that.”
The approach was echoed by Everest Re’s reinsurance boss John Doucette who said: “The fact that there is a lot of M&A, and activity and discussion, we think does present opportunities for us particularly on the reinsurance side,” according to a Seeking Alpha transcript.
He said that some of that consolidation had resulted in carriers buying more cover.
“And so their capacity demands are increasing and we’re seeing some of the large global insurers buying more and buying more in the casualty and professional lines,” he explained.
One of those carriers could be Aspen, which disclosed that it had considerably upped reinsurance spend after last year when it was dogged by $561.9mn of catastrophe losses.
In its first quarter results Aspen said that it retained only 42.7 percent of reinsurance risks, down from 55 percent during the same period in 2017, and 68.2 percent of reinsurance premiums, down from 79.3 percent last year.
Speaking to analysts, O’Kane said: “Ceded written premiums increased to $481mn due primarily to the increased quota share reinsurance we’ve previously discussed and now includes a 60 percent quota share on our US property book,” according to Seeking Alpha.
Referring broadly on the recent wave of consolidation in the market, O’Kane said that future deals were unlikely to achieve the lofty multiples paid for the likes of XL and Validus.
Without naming the companies, O’Kane said that the two big deals on Bermuda this year - which saw Validus acquired by AIG for around $5.6bn or 1.5x book and XL taken out by Axa in a $15.3bn deal that valued the company at a similar price-to-book multiple - represented “absolutely excellent” value for shareholders.
“I think almost any board at any time in history faced with an opportunity to get that much value for the shareholders will take it,” he said.
But he added that he did not think the multiples represented the “new normal”.
Referring to the two blockbuster deals, he said: “I think there might have been special circumstances [and] special relationships.”
“That said, I think there will be more M&A there will be more consolidation - that is absolutely the way of the world,” he went on.
“But maybe the beginning of this year saw more than the normal allocation and maybe prices that were a bit more generous than you might expect to see over time.”