Key insurance market faces changes after M&A activity

Key insurance market faces changes after M&A activity | Insurance Business

Key insurance market faces changes after M&A activity
The recent spate of mergers and acquisitions across the insurance industry could see the professional indemnity market changing shape, according to founder and managing director of a leading brokerage.

Michael Gottlieb, founder and managing director of Bizcover, told Insurance Business that while it is still early days in the wake of the major mergers and acquisitions across the industry, the market could face changes.

“It is very early days so we have not seen an impact yet,” Gottlieb said.

“However, it is highly likely that many of the merged insurers are on the same insurance programs. Now that they are one insurer it is likely they will want to manage their exposure and thus reduce the amount of capacity they offer.

“This will result in an instant reduction of capacity which in the current marketplace can be replaced fairly easily in most situations, but there will be certain companies that find it more difficult or expensive to fill their insurance programs.”

Data compiled and released by Bizcover, shows the changing market in the PI space over the past few years as prices continue to drop.

“Since the start of FY 2012/13 SMEs have benefited by a drop in rates of 24 basis points,” the company said in a statement.

“The majority of this decrease was driven in FY2013/14 where prices dropped 18%, however since the beginning of FY 2014/15 that rate decline has slowed and in fact it flattened over the last quarter, resulting in overall prices this financial year falling only 2%. 

“This trend has been largely consistent across the 3 main product categories of Professional Indemnity, Combined Professional Indemnity & Public Liability and Public Liability/Business Packs.”

Gottlieb noted that in order for the market to harden, two aspects need to change but this change could be some way off.

“We need a substantial reduction in capacity for the market to harden,” Gottlieb said.

“It is likely we will continue to see more M&A activity which will increase the ‘catastrophe’ exposure to the remaining insurers. Therefore when there is a significant event, it will be more material to the remaining insurers causing larger losses.

“Consolidation combined with large losses should reduce the amount of capital looking to invest in insurance and thus the market would harden. It is likely this is some time away.”

Over the next year, Gottlieb sees very little changing in the PI space as he believes the reductions of the past decade will make it difficult for insurers to reduce even further.

“I don’t see many changes for the PI market next year,” Gottlieb continued.

“There is plenty of capacity and while supply is substantially greater than demand, pricing will remain soft.

“Given the enormous reductions we have seen over the past decade, it is unlikely that pricing will reduce much further either. Therefore I would expect much of the same with a likelihood of a slight reduction over the next 12 months.”

In recent months, several major mergers and acquisitions have been announced involving ACE and Chubb, XL and Catlin and IAG.