Even though the London re/insurance market has recently seen a number of merger and acquisitions (M&A) deals, this may not indicate a widespread return to M&A for all London-listed specialty re/insurers, Autonomous’ analysts suggest.
The recent news that London Market insurer Inigo had agreed to be acquired for $1.7bn marks the third deal in as many months involving specialty/London Market companies, with Aspen and Canopius also being recent targets.
“This once again brings into question the prospect of M&A for the London Market names in our universe. In terms of read-across, Lancashire (OP) is the closest comparison to Inigo, while there is also good read-across for Beazley (OP), Conduit (UP) and Hiscox (N),” analysts said.
Overall, Autonomous believes that the Inigo deal will have a neutral impact on the London Market companies in its portfolio. This is due to the company’s valuation being consistent with the current trading of the four London Market companies mentioned above.
For the UK stock market, Autonomous describes the Inigo announcement as bearish, as it signals once again that the market reception for a potential initial public offering (IPO) “was tepid.”
This comes after Canopius pulled out of the IPO process earlier in the summer. Despite this, the interest to acquire specialty/reinsurance companies in London is a positive for the sector, analysts noted.
“We believe the universe of companies which would be interested, and have the ability, to acquire one of the listed London Market companies is relatively narrow. Instead, there are easier and cheaper methods for those who are interested in attaining, or expanding, exposure to specialty/reinsurance lines,” Autonomous stated.
Adding: “We also believe that despite Conduit’s attractive valuation (on paper), the chances of a potential acquisition are low, primarily because the incentives are not there for the founders.”
Despite the recent activity, Autonomous believes that M&A prospects for the London Market (LM) stocks remain limited for a number of reasons.
Firstly, there are limited buyers looking for this exposure. Secondly, the best of the hard market is over so the timing is not ideal. Lastly, despite trading on wide discounts to the reinsurers and broader sector, the LM companies would still be relatively expensive to acquire after factoring in the hit on solvency.
The report noted that while a major deal, particularly for a company like Lancashire, cannot be ruled out entirely, it would be seen as a bold and ambitious move in the current environment.
Autonomous stated: “Even before the current spate of M&A deals in the LM/specialty space, we routinely faced questions from investors over the potential prospect of M&A picking up in our space. One of the observations we often make in response is that most of the largest (most obvious) names in global P&C space already has exposure either to Lloyd’s or reinsurance already.”
Concluding: “We find there are very few multi-liners globally that have no exposure to reinsurance / Lloyd’s at all, with most already having some degree of business in these areas.
“Therefore, the field of candidates for those who may want to acquire one of the LM companies to increase exposure is limited. Additionally, we note that it is rare to see a company double dip in the space with multiple acquisitions.”
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