Bermuda Reinsurance Boards: Time to Sell
Bermuda Reinsurance Boards: Time to sell your companies. (If you aren’t aware already).
You’re almost out of the woods on wind season, equity multiples are high, healthy market terms, abundant capacity, too much competition, too many UW shoppes, tax reform/BEAT tax, uncertainty in BDA and London, profitability issues, third party capital growth, expensive infrastructure, broker consolidation, Fed interest rate hikes….need I go on?
The ability to set up special purpose vehicles, sidecars, or other collateralized reinsurance programs has allowed a tremendous amount of capital to come into the future winners of this industry. This trend will only continue. Why add a dollar of new risk capital to old infrastructure when it can mirror the results with lower infrastructure costs.
If you don’t have a big enough balance sheet to compete (>$10B with decent Third party capital or $15B equity capital) it’s time to “call a spade a spade”, there is little value added service or intellectual capital anymore.
Brokers are too powerful.
Value creation is decreasing.
Reinsurance has always been an industry with products and services that are easily copied.
If you are lucky enough to have a unique business team or talent, hold on to that person or team for dear life with large compensation and bonuses, as the vanilla businesses that you are participating in will not be what drives strong valuation. >20 markets competing for same business and having low or non lead lines is not value added anymore.
The giants in the space are going to continue to gobble up the most profitable deals and you will be stuck with the leftovers.
Book rolls rarely trade at great multiples, but strategic acquisitions of non competing businesses have great value for 1+1 = 3 calculations.
Smart talent will be searching for safer ports of large balance sheets to whether the consolidation storm.
The bigger is better analogy will only last so long. The surviving companies will have to be better risk selectors and more efficient due to pressures of technology and capital.
Time is not on your side, time to move if your on a reinsurance board.
This is living example of the cliche “when the tide goes out…we will see who is wearing a bathing suit and who is swimming naked”.