The industry can expect more mergers and acquisitions in coming months as insurers look to overcome limited organic growth opportunities, AM Best says.

Major deals announced this year include Axa’s €12.4 billion ($19.2 billion) purchase of XL Group and AIG’s $US5.56 billion ($7.36 billion) takeover of Bermuda-based Validus Holdings.

“With underwriting performance under pressure and investment returns persistently low, insurers are finding it difficult to meet target returns, fuelling the drive for market consolidation,” the ratings agency says.

“AM Best expects the drivers and market dynamics behind recent deals to remain and that consolidation will continue, particularly for smaller insurers, as it becomes increasingly difficult to achieve acceptable returns on capital.”

Businesses with strong data and analytical capabilities, or a focus on less commoditised specialty lines, are particularly attractive takeover targets.