US firms set to buy into Lloyd's

Lloyd's companies could be the targets of increased merger and acquisition (M&A) activity from the US in 2007, according to a senior industry figure.

Interest from US insurers and brokers is expected to heighten in the next 12 months following the deal between reinsurance company Equitas and US insurance group Berkshire Hathaway.

The industry source told Insurance Times that an improvement in the US dollar combined with a change in London Stock Market ratings could lead to increased overseas expansion.

The source said: "It could also spark a series of mergers and acquisitions between the top tier of Lloyd's managing agents and those smaller capacity companies, which operate within similar business classes.

"The Equitas deal means that those companies that were not too keen to have a bigger share of the Lloyd's cake before, because of uncertainties and the baggage of previous years, now do not have to worry."

Insurance analyst Numis Securities said that while the sale of Wellington to rival insurer Catlin could also set the "consolidation ball rolling", further M&A was not inevitable.

Richard Gradidge, a Numis analyst, said: "As a potential acquirer, Catlin has a major advantage in that its Bermuda tax structure should provide the key synergy that might help it pay for a bid premium. Other potential buyers may find it harder to pay a similar take-out premium."

Meanwhile, the Equitas agreement is likely to impact on other trends currently affecting Lloyd's.

Standard & Poor's said although it believed others would follow Catlin, Amlin and Hiscox in a move to Bermuda, the transaction could remove the "urgency" to geographically diversify operations in favour of M&As at Lloyd's.

See next week's Insurance Times Top 50 Insurers supplement for an in-depth analysis of the movers and shakers in the UK markets