More Lloyd’s M&A to come - AM Best

Lloyd’s businesses continue to be potential merger and acquisition (M&A) targets, according to a briefing from rating agency AM Best.

The rating agency said M&A is being spurred because achieving organic growth independently is a challenge and insurers are seeking diversification and other benefits.

AM Best reiterated that despite 2011’s extraordinary catastrophe losses, the capitalisation of most London market participants proved to be resilient. It added that the global insurance industry’s capitalisation also remains robust, which has contributed to the absence of a strong market-wide upturn in rates.

These soft market conditions have resulted in limited opportunities for organic growth, prompting insurers to consider growth through acquisition, the agency asserts.

Over the past 12 months, a number of US companies have attempted to buy Lloyd’s vehicles. AM Best expects takeover approaches to continue as companies seek risk diversification. Lloyd’s provides a platform for London market risks, as well as overseas exposure through its global infrastructure and its international licences, the agency noted.

Bermudian companies also have been attracted by capital efficiencies and access to the ratings of Lloyd’s, AM Best said. The existence of the Central Fund, which partially mutualises capital at a market level, enables all syndicates to benefit from credit ratings assigned to Lloyd’s.