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Mergers and Acquisitions

Every industry goes through a different cycle of ups and downs.  Obviously we’re no different, but it seems like the downs are getting much longer and the ups are few and far between.  Many companies feel the only way out of this market doldrums is through mergers and/or acquisitions.  When capacity in the insurance industry is so plentiful and so much capital is sitting on the sidelines, it’s very hard to imagine the potential of an upswing in our soft market cycle.   So many companies have turned to the M & A side to boost their potential profits and try to reduce capacity in some ways.  This isn’t about aviation insurance, but rather the insurance industry as a whole.

Some people think that in order to be a major player in the insurance market you need to be excess of $10b in written premiums or you’ll end up marginalized and second tier capacity with the potential of not seeing the very profitable property cat premiums.  It has many companies looking around to see who they can acquire or merge to achieve the larger premium base.  Some say that is the reason behind the XL and Catlin and the Axis and Partner Re mergers.  Articles in Insurance Insider are pointing towards many more mergers to come listing some companies and their potential “need” to be acquired in order to be competitive. 

For the aviation market, we’ve seen a couple that involve our US book.  Fosun, a Chinese investment company recently acquired Meadowbrook and also took over a majority stake in IronShore.  XL and Catlin will need to be ironed out, but don’t expect a reduction in capacity from this transaction in the states.  We are seeing many of the international operations especially some of the independent Lloyd’s syndicates looking like good targets based on the recently announced acquisition of Brit Syndicate by Fairfax Holdings

Don’t be fooled that these few transactions will change the market, in fact S & P has said not to bet on a hardening market based on the recent mergers.  The synergies created by the combination of the companies joining forces are not enough to improve the long term results.  The one thing that seems very clear is that we will see some name changes in our industry and unfortunately we will see some job losses.  My recommendation for the aviators is to focus on what you do best and keep your results positive and I’m sure there will be a position for you in our industry of the future.

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