Reinsurance mergers and acquisitions will be “constrained” into next year due to investor concerns about macroeconomic risks and increased catastrophe losses linked to climate change, Fitch Ratings Inc. said in a report released Wednesday.
“We expect reinsurers to prioritize pricing, risk management and organic growth rather than M&A as they grapple with the consequences of the economic downturn, high inflation and volatile financial markets,” Fitch said.
Hardened reinsurance rates and increased profitability are not expected to catalyze interest in acquiring reinsurance in the near term. ILS investors have also withdrawn from the market after several years of above-average catastrophe losses, and rising interest rates could lead to a lower supply of alternative capital to the reinsurance market, most of which is through insurance-linked securities.
Covea Corp̵7;s $9.1 billion purchase last month of PartnerRe from Exor is seen as an exception by Fitch.
“The ownership benefit under a group credit strategy with Covea, a major property/casualty, health and life insurance organization,” is “more strategic than that of Exor, an investment company.”
Fitch also pointed to the eventually abandoned effort by Axis Capital Holdings Ltd. to sell its underperforming reinsurance business after several years of repositioning.