Omaha Property And Casualty Insurance Company

Buyers, sellers at a standoff in reinsurer M&A market

With a weak economy, soft pricing for most noncatastrophe coverage lines and limited investment gains, reinsurers' stock prices remain subdued, marking them as possible bargains for investors or rival reinsurers.

But there often is too wide a disparity between what stockholders perceive as the true value of their holdings and what prospective buyers are prepared to pay.

“Everyone wants to be a buyer, but nobody wants to sell,” said John Andre, group vp at Oldwick, N.J.-based rating agency A.M. Best Co. Inc. “Based on current reinsurance and financial market conditions, we don't see a lot changing.”

For example, Montpelier Re Holdings Ltd. in recent years has considered buying a Lloyd's of London platform to expand the Bermuda-based reinsurer's existing offerings in the London market. But the owners of syndicates that were approached would sell only at a significant premium over their book value, despite their depressed share prices.

Book value is a measurement used to determine the actual asset value of a company. According to analysts, many reinsurers are trading at about 70% of their book value.

“It's hard to justify the prices people were looking for at the end of the day,” said Montpelier Re Treasurer Bill Pollett. Meanwhile, it can make more sense to buy shares back, rather than invest in acquisitions, when they're trading so cheaply, he said.

The difficult operating environment and general macroeconomic uncertainty provide further hurdles. For example, uncertainty exists around the timing of a market turn that would lead to higher prices, volatility in global equity markets and the declining availability of reserve releases.

Management teams are “extremely cautious when pursuing M&As,” Christopher Ezbiansky, New York-based managing director and head of M&A advisory-Americas at GC Securities, the investment banking arm of reinsurer Guy Carpenter & Co. L.L.C., said in an email.

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