Mergers and acquisitions will accelerate as the operating environment for reinsurers continues to deteriorate, according to Moody’s.

Endurance Specialty Holdings has revealed it will buy reinsurer Montpelier Re for about $US1.83 billion ($2.38 billion), in the latest example of market consolidation.

This follows RenaissanceRe’s acquisition of Platinum Underwriters, XL’s merger with Catlin and the amalgamation of PartnerRe and Axis Capital.

Moody’s says only half of reinsurers reported improved profitability last year, despite fewer catastrophe losses and a strengthening US dollar.

Property catastrophe pricing – historically the sector’s most profitable line – continues to decline due to the availability of lower-cost alternative capital.

“The speed of the deterioration is tilting reinsurers’ ‘buy versus build’ decision towards mergers and acquisitions because they don’t have time to build new platforms from scratch,” Moody’s says.

“Although consolidation, which carries risks of its own, won’t be enough to solve these issues, it will allow [companies] to expand scale and diversification, and provide more opportunities to improve profitability by eliminating redundant costs.”