Beazely’s renewed interest in acquiring Hardy is a foreshadow of increased consolidation next year, Fitch Ratings has said.
Low valuations and the implementation of Solvency II will make smaller companies and companies that were hurt by natural disasters this year ‘primary targets’ for acquisition, the ratings company said.
Some takeovers will be necessary for some companies to survive, as continued earnings pressure will make it hard to convince investors to buy shares and invest capital into a company that cant promise strong returns.
Hardy announced earlier this month that it had launched a strategic review in the wake of catastrophe losses. While the firm said it had sufficient liquidity and capital to absorb the losses, it added that it would consider looking for a buyer. Beazley said Wednesday that it is interested in takeover talks after a previous approach failed last year.
“We believe insurers may also be more willing to complete deals as they get a better view of the capital requirements that will be implemented under the Solvency II regime,” the ratings company said.
“The capital requirements should become clearer next year, allowing potential buyers to more accurately assess the true value of targets.”
They said that the smaller, more specific insurers will struggle to survive by themselves after Solvency II so there is a strong likelihood that there will be an increase in consolidation.
Fitch’s current outlook for the UK non life-insurance sector in 2012 is stable.