Lloyd’s insurer Catlin (CGL) falls 2.2% to 630.2p following yesterday’s 10.8% gain on news that Dublin-based reinsurer XL Group (XL:NYSE) wants to buy the business. Catlin is mulling over the 699p cash and share offer, which values the property and casualty insurer at some £2.5 billion.

This could be the start of a consolidation trend in the catastrophe insurance market. Low hurricane and storm activity has put pressure on pricing, forcing premium quotes down. The forecast for 2015 looks no better with the 13 storms expected some 30% lower than the 10-year average.

Web - Catlin - 18 December 2014

This makes moving onto the M&A market a better use of cash than underwriting new business where the returns will continue to low next year.

Joanna Parsons, an analyst at broker Westhouse Securities said in a note issued On Friday (12 Dec): ‘M&A is the next stage of a soft market as companies capitulate/look to grow by buying income/expertise and we note a Lloyd’s platform is also seen as attractive.

‘None of the quoted Lloyd’s players are so big they could not be bid for but their higher P/B valuations make them a more expensive challenge,’ she added, flagging Lancashire (LRE) and Novae (NVA) as potential targets.

Issue Date: 18 Dec 2014