The shopping spree in the reinsurance and insurance sectors will only intensify amid growing pressure to increase earnings, according to Standard and Poor’s (S&P).

Investors see mergers and acquisitions (M&A) as a way to open new avenues of organic growth, reduce costs, raise capital efficiencies and counter competitive pressure.

They are increasingly emulating the Berkshire Hathaway business model, under which reinsurers and insurers with strong operating cashflows are takeover targets.

“We believe the reinsurance M&A momentum will continue for the rest of [this year] and into [the next],” the ratings agency says.

“Insurance M&A has been rampant outside the reinsurance market as well.”

Nine major deals worth $US57 billion ($81.3 billion) have been announced in the past nine months, with buyers paying an average of 24% above market valuations.

“We see some potential benefits to each of the individual deals, if executed correctly,” S&P says. “However, we would classify all these transactions as primarily defensive in nature, because the management teams have taken the view that combining forces with another player will make their companies more viable to compete in the coming years.”

S&P says it is too early to predict if the current wave of M&A activity – which started with RenaissanceRe Holdings’ $US1.9 billion ($2.7 billion) takeover of Platinum Underwriters last November – will result in successful unions.

The Berkshire model has been adopted by Canada-based Fairfax Holdings for decades and most recently by China Minsheng Investment Corp and Fosun International in their takeovers of Sirius International and Ironshore respectively.

S&P says negative ratings actions loom if changes in ownership result in weaker business or financial risk profiles.

“The [Berkshire] business model is hard to duplicate and it is becoming a crowded trade in an already saturated reinsurance market.

“There is still uncertainty surrounding how… [companies’] investment strategies could be altered and potentially become more aggressive, or their competitive position could be undermined by a significant strategic shift in their business mix to lines or regions in which they don’t already have expertise and relationships.”