One year after swallowing one of Hartford’s oldest insurers, Munich Re – Germany’s largest reinsurer – reportedly has in its crosshairs another insurer with operations in the Insurance Capitol.
XL Capital Ltd., a big Bermuda-based reinsurer whose logo adorns downtown Hartford’s entertainment-sports arena, may be an acquisition target as weak prices in the business fuel more deals, The Wall Street Journal reported Wednesday.
Citing investors and analysts, The Journal reports Germany’s Munich Re, one of the world’s largest reinsurers, is a possible acquirer of XL as it looks to expand more in the U.S. and put excess capital to work.
In April 2009, Munich Re paid $739 million to acquire former HSB Group Inc. – operator of Hartford Steam Boiler Inspection and Insurance Co. and other insurance units – from AIG.
“Munich Re has done well and has lots of money to make acquisitions, but the reinsurance market is soft and the company isn’t growing, so their strategy may be to grow by acquisition,” said Andy Barile, an independent insurance industry consultant. “The operating subsidiaries of XL Capital would fit in very nicely with Munich Re.”
Spokeswomen from Munich Re and XL said they don’t comment on market rumors.
Reinsurance is bought by insurers to cover some of the risks they’ve taken on. It’s a big business that experiences cycles based on how much capital is available to underwrite risks. When reinsurers have spare capital, they step up the competition for more business, pressuring prices and creating what’s known as a soft market.
A.M. Best, a leading insurance industry rating agency, said this week that reinsurers are battling against a softening market. That’s encouraging many companies to use excess capital to buy back stock, pay more dividends and, to a lesser extent, pursue mergers and acquisitions.
XL has had the opposite problem in recent years as huge losses from the financial crisis increased investor concern that the reinsurer doesn’t have enough capital to take on lots of new risks and pay claims.
At noon, XL was up 37 cents, or 1.87 percent, to $20.14.
