Brit Chief Says Excess Capital Will Spark More Mergers & Acquisitions

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Brit plc Chief Executive Officer Mark Cloutier said an excess of insurance industry capital will force more executives to sell or merge their companies.

Cloutier said Brit’s planned $1.88 billion sale to Prem Watsa’s Fairfax Financial Holdings Ltd., which was arranged within months, had been well received by shareholders and the firm’s private-equity investors. The stock has jumped about 26 percent since its initial public offering in March.

“It is tough out there,” Cloutier said in an interview. “There are enormous capital inefficiencies, so consolidation will bring some of that efficiency back. There is also the herd mentality so I expect to see more deals over the next 12 to 18 months.”

Pensions and hedge funds have been plowing into insurance wagers as they seek investments uncorrelated with stock and bond markets. The glut of money in the industry has pushed down prices and eaten into providers’ margins. Arch Capital Group Ltd. CEO Dinos Iordanou said Feb. 11 that the crowded market has led to the emergence of “desperate competitors.”

Cloutier, whose company operates in the Lloyd’s of London market, said that in a time of disruption in the industry, it made sense to join his “old friend” Watsa at Toronto-based Fairfax. Brit started “meaningful” conversations with Watsa around October and by Christmas time discussions intensified. he said.

Catlin, XL

His comments echo remarks by Catlin Group Ltd. CEO Stephen Catlin, whose company accepted a takeover offer from XL Group plc. Analysts this month have said that Lancashire Holdings plc and Novae Group plc may be the next targets.

Brit on Wednesday reported 1.3 billion pounds ($2 billion) of gross written premiums in 2014, an increase of about 9.8 percent from the previous year. Net profit climbed 40 percent to 139 million pounds.

The insurer also named Matthew Wilson group deputy CEO and chief underwriting officer. Cloutier reiterated his intention to remain CEO of Brit, which Watsa has said will run independently.