With consolidation talk heating up in Bermuda this week, followers of the island market and its acquisition activity over the past decade wonder about the plans of Bermuda’s most active acquirer in recent years.

Ed Noonan, the chairman and CEO of Validus Holdings, is used to this kind of question.

Asked for his views on consolidation in Bermuda during a presentation at the Barclays Select 2014 Insurance Forum in New York last month—well before any news of Endurance Specialty’s hostile bid to acquire Aspen Insurance Holdings became public—Noonan made light of his reputation.

“Ed, you’ve been a serial killer. We haven’t seen any bodies lately. What are you up to,” he said, restating the question of an analyst who asked if Validus has acquisitions in its near-term strategic plans.

Validus acquired monoline property-catastrophe reinsurer IPC Re in 2009. In 2011, the company made an unsuccessful bid for Transatlantic Re. A year later, Validus acquired fellow member of the Bermuda “Class of 2005” startup, Flagstone Reinsurance.

So what is Noonan up to now and what does he think about the potential for consolidation in Bermuda this year?

He told Barclays analysts in March that Bermuda consolidation is inevitable, but that Validus would likely sit on the sidelines for the upcoming round of consolidation.

“For us, there are diminishing returns in the catastrophe space, certainly. [So] acquiring a catastrophe company really doesn’t do much for us unless there’s an attractive financial transaction.”

“When you get beyond that, I wouldn’t say that there’s no company in Bermuda that we would find attractive, but I don’t particularly feel compelled to buy other Bermuda reinsurers at this point in time.

“We would prefer to continue grow the direct insurance part of our operation. We’re about 50-50 today, and I think longer term, we have a bias toward growing the direct insurance operation—and that isn’t really the Bermuda market,” he said.

Validus writes reinsurance in Bermuda through Validus Re and specialty insurance through Talbot Underwriting at Lloyd’s.

“I think there should be more consolidation in Bermuda. You can see lots of natural fits,” Noonan said.

“I suspect we’ll be less the catalyst around that then we have been in the past,” he added.

Noonan said doesn’t have a specific idea of what vehicle might be used to grow direct insurance business. “It could be Lloyd’s or a different vehicle. It doesn’t matter. We can continue through Lloyd’s very nicely almost anywhere in the world. But whatever the right vehicle is to capture a market opportunity is what we’ll do,” he said.

Like Validus, the business mix of the companies at the center of the most recent tug-of-war in Bermuda—Aspen and Endurance—is split between insurance and reinsurance, with insurance making up roughly 57 percent of Aspen’s $2.6 billion of gross written premiums in 2013 and 55 percent of Endurance’s $2.7 billion of gross premiums last year.

Some of barbs exchanged in a war of words fought through media releases and letters published by Aspen and Endurance yesterday focused on the Lloyd’s market and what Aspen referred to as “Endurance’s well-publicized antipathy for Lloyd’s,” which Aspen says is inconsistent with Aspen’s business model which has a Lloyd’s syndicate core growth engine for international insurance business.

An Analyst’s View of Reinsurance M&A

Broadening the question beyond Bermuda, but narrowing the focus of the type of business to reinsurance, Stuart Shipperlee, Analytical Partner for Litmus Analytics, suggested that enthusiasm for M&A activity could be dampened by rating agency considerations.

Writing in a blog post titled, “Will ratings hinder reinsurer M&A and the hedge fund play,” Shipperlee said, “Reinsurer M&A in a softening market has not always been a runaway success to put it mildly [and] the business case will not be easily made to the [rating] agency.”

“Increased market power can be a plus but it takes real scale in the reinsurance market for this to be much better than a neutral factor for a rating,” he continued.

Shipperlee also pointed out the cost efficiencies achieved in M&A deals are positives for the deal participants but that few reinsurer ratings are heavily influenced by this. The “simple reason” is that “in a volatility based business, it’s management of that volatility (i.e. capital, underwriting and ERM) that drives the credit risk profile, not whether a reinsurer has rather overdone it in staffing up the marketing department.”

He added that diversification benefits may be more compelling from a rating agency perspective. “Buying a well-established book is generally seen as less risky—reserve adequacy permitting— than organic diversification.”

However, post-acquisition plans involving a more aggressive use of the combined capital than that of the pre-acquisition acquirer will not necessarily sit well with raters. “The conversation with the agency may not be straightforward” in this situation, he said

Shipperlee’s blog item also mentioned rating agencies’ “inevitable concerns about execution risk and whether the acquired reserves are indeed adequate,” as well as inevitable questions about engaging in acquisitions at this point of the cycle, suggesting that “some very persuasive logic” might be needed to support an acquirer’s rating.