Continued merger and acquisition activity in the (re)insurance sector – creating huge entities and smaller competitors with newly acquired global scale – may pose a risk to Lloyd’s, according to Fitch Ratings.

With last year’s merger and acquisition trend widely forecast to intensify this year, the only question is which insurers and reinsurers will look to increase global scale in response to an overcapitalised, super-competitive market.

It is not just the major insurers getting bigger that pose a risk to Lloyd’s. Fitch says mergers of smaller companies in pursuit of scale, product diversification, new distribution channels and operational efficiencies represent even more competition.

“These larger specialist (re)insurers will have more flexibility in choosing whether they want to underwrite through their own brand or use the Lloyd’s platform,” the ratings agency says.

“Drivers include an enhanced ability to access business on global programs external to Lloyd’s, as well as being able to write the business more efficiently from another jurisdiction.”

Lloyd’s is aware of the challenge. Under its Vision 2025 program, expanding into emerging markets, including China and India, is critical to the market’s growth strategy.

However, Fitch warns product innovation, market modernisation and improved efficiency must accompany Lloyd’s expansion strategy if it is to succeed in growing market share.

It says in a rapidly changing competitive landscape, Lloyd’s cannot rely on the allure of its rich heritage for continued success.

“Limited growth opportunities in developed markets have already led a number of insurers with a Lloyd’s presence to enter emerging markets independent of Lloyd’s.”