Friday, May 11, 2007

Big reinsurance move Deals in the financial markets indicate once again the concentration, segment by segment, of that sector. For example, the reinsurance industry keeps getting more and more concentrated. French reinsurance company Scor SA (the world's #4 reinsurance company) announced it has reached a deal with Swiss rival Converium (formerly Zurich Re). The deal is for $2.8 billion. This follows a series of hostile bids from the French company finally resulting in a price they couldn't refuse. Reinsurance, as you probably know, is the insurance companies that regular insurance companies use to spread out their own risks. The reason for this merger and others is geographic and coverage diversification, according to a Wall Street Journal article ("Deals Hurricane: Will Reinsurers Merge to Cut Risk?", 3/27/07) The main argument for consolidation: increasing pressure on reinsurers to limit their exposure to any one type of disaster by selling a more diversified range of policies. With the U.S. hurricane season kicking off in roughly two months, the time for action might be now. Reinsurers effectively sell insurance to insurers, helping their customers to spread out their risk. In addition to this deal, US-based Argonaut Group merged with Bermuda-based reinsurer PXRE Group. Among other companies in play are Bermuda-based Endurance Specialty Holdings and Max Re Capital as well as UK-based Chaucer Holdings, Kiln, and Brit Insurance Holdings. All these companies need more heft to compete with industry giants Swiss Re, Munich Re, and General Re) part of US-based conglomerate Berkshire Hathaway). Berkshire Hathaway bought off Converium's US assets in 2006. Swiss Re bought GE's reinsurance business in 2005. 8:52:29 PM

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