Bermuda targeted in sector consolidation push

The recent US tax change and the significant natural catastrophe losses that hit the market in 2017 are expected to trigger consolidation in the re/insurance sector with a particular focus on Bermuda.

“Entities might be under a bit of additional strain following cat losses and they could turn to M&A as a way of better managing these challenges,” Fitch Ratings director Graham Coutts said during a Jan. 25 briefing in the City of London.

Insured losses from weather disasters in 2017 were among the costliest ever incurred, reaching $134 billion.

Bermuda's major re/insurers will report elevated combined ratios for 2017, averaging around 108 percent to 109 percent, according to Fitch Ratings.

The US tax changes are another reason why Bermuda is likely to be at the centre of a sector consolidation, Fitch Ratings director Graham Coutts suggested.

The 2017 cut in the US corporate tax rate to 21 percent from 35 percent and the new base erosion and anti-abuse tax (BEAT) will significantly reduce the long-standing tax advantage of Bermudian re/insurers over those in the US.

In a recent move, American International Group (AIG) is acquiring Bermuda-based Validus Holdings for $5.56 billion.

The transaction enhances AIG’s general insurance business, adding a reinsurance platform, an insurance-linked securities (ILS) asset manager, a presence at Lloyd’s and complementary capabilities in the US crop and excess and surplus (E&S) markets.

The recent deal of AIG and Validus is a good example, Coutts said. AIG gains a Bermuda and a London Market operation helping to diversify their platform, he noted.

“Expectation is that we are likely to see more of these types of deals throughout 2018,” Coutts said.

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