Another year has come to an end, and it’s again time for some reflection on the global re/insurance industry that we cover at Reactions.
As you’ll find later in this double-edition of Reactions, David and I have written features looking back at some of the key issues that have impacted our respective regions of the globe. Doing so was not easy, and indeed many readers will point out that we have missed some of the biggest points. So now is an opportunity to set some of those straight.
My look back at 2016 feature focuses on North America, and for the sake of argument I’ve used that definition to refer to the US and Canada, excluding Mexico as here at Reactions, that country forms part of our Latin America region.
So what did I miss out… Well if I’d glanced eastwards into the Atlantic, I could have highlighted the introduction of a Solvency II equivalent regime in Bermuda.
At the end of March, the European Union signed off on Bermuda’s long awaited bid to gain Solvency II equivalence.
It meant the island joined Switzerland as one of only two jurisdictions that had been granted Solvency II equivalent status.
It took Bermuda six years to reach that point, although it had reached a major breakthrough the previous November when its equivalence status was signed off by the EU. It then took another 90 days as part of a review conducted by the European Commission and the European Parliament before Bermuda joined Switzerland in being granted Solvency II equivalent status.
As 2016 ends, the process of moving into Solvency II-style regulation appears to have been fairly smooth, although apparently some have found it more difficult than anticipated.
It was not only being granted Solvency II equivalence that dominated discussions in Bermuda earlier in 2016 as there was also much talk about who was rumoured to be next up for grabs in the merger and acquisition merry-go-round.
While it took a little longer than many expected, Bermuda finally got its standout M&A deal for 2016 when it was announced in October that Japan’s Sompo Holdings was to acquire the John Charman-led Endurance Specialty for $6.3bn, representing a 1.36x multiple to the re/insurer’s book value.
It was yet another example of Japanese giants making a play in the Western re/insurance world, following on from Tokio Marine’s acquisition of HCC for $7.5bn in June 2015 as well as Mitsui Sumitomo’s $5.3bn deal for Amlin in September 2015.
Elsewhere, and more recently, came the announcement that Chinese conglomerate Fosun was to sell its US specialty insurance business Ironshore to Liberty Mutual. Boston-based Liberty Mutual is paying roughly $3bn to take Ironshore off Fosun’s hands, equal to 1.45x book value. That represented something of a coup for Fosun as it had originally bought the US excess and surplus lines insurer at 1.25x book value, with the total consideration paid for the business amounting to $2.3bn.
What was intriguing about that is Fosun’s divestment of Ironshore has come about because the US carrier’s ratings have been under pressure. Ironshore currently enjoys an A (excellent) rating from AM Best, but that was under review with negative implications because of what the rating agency called Fosun’s “weak financial profile”, as represented by its high financial leverage and constrained liquidity position.
As such, that Fosun was able to get such a good price for Ironshore is testament to the strength of the underlying business. Indeed, Liberty Mutual was able to acquire Ironshore after something of a bidding war erupted for the firm with companies such as The Hartford, Markel, Canada’s Intact Financial and Axis all rumoured to have been considering making a play for the firm.
Evidently that did not happen, but there continues to be plenty of speculation of who the next target in the M&A battle will be. And one thing is almost certain – that we