Credit ratings firm Fitch has said it expects an increase in the number of mergers in the reinsurance sector, with firms likely to look at possible acquisitions in an attempt to deal with pressures in the market.
The analysis by the agency comes after Bermuda-based RenaissanceRe announced earlier this week it would buy Platinum Underwriters Holdings, also established in Bermuda, for $1.9bn.
Examining the deal, Fitch said mergers in the sector had been limited recently, but this deal could lead to more firms embracing consolidation as a strategic option.
Record capitalisation among traditional reinsurers also meant that deals were likely, as achieving scale and increasing diversity through acquisitions could be beneficial by boosting the total capital available for firms.
Capital size is particularly important for reinsurers, as their purpose is largely to absorb earnings volatility on behalf of clients, while a larger reinsurance organisation also has a greater ability to lead reinsurance programmes and negotiate pricing.
'In the current competitive environment, stronger, more established reinsurers are maintaining capacity at the expense of smaller, weaker companies,' Fitch's update stated.
'A certain amount of consolidation would be a modest positive for the reinsurance sector, as a reduction in the number of reinsurers and associated underwriting capacity would be likely to ease competitive pressures.'