Yesterday, AXA announced its acquisition of XL Catlin. This is just after AIG’s announcement that it plans to buy Validus. Is this the beginning of a trend? It may be. There are a lot of macro-level drivers for acquisition. These drivers include access to emerging markets, return on capital, access to underwriting expertise, and expansion to additional specialty lines of business. There are also many non-traditional competitors entering the market (e.g. cat bonds).
For competing firms, acquisitions will need to make sense in the context of their overall business strategy and opportunities to maximize return on capital. The article notes that scale benefits are less clear in specialty lines. This is true in that the underwriting is different from business to business and technology is not as critical in many lines. However, access to underwriting expertise and places to earn a high return on capital (with fewer reserves needed) is a strategic differentiator.
And what of the Insuretech firms? Look for more change as 2018 progresses.