The $1.9 billion cash-stock deal by RenaissanceRe Holdings Ltd. for Platinum Underwriters Holdings could spark more merger and acquisition activity among reinsurers, Fitch Ratings said last week, adding that some consolidation would be a positive development for the reinsurance sector.

In a statement published late last week, the rating agency noted two factors that had been limiting reinsurance M&A activity prior to Ren Re’s deal announcement last week: a lack of willing sellers and inherent uncertainty tied to large acquisitions.

“This proposed transaction is not a blockbuster deal,” Fitch said, noting that Platinum Re is a small, shrinking reinsurer. The deal, however, “may provoke a shift in market attitude to embrace more consolidation as a strategic option to combat the stress in the reinsurance market.”

The RenRe-Platinum deal is a combination of reinsurers, but many reinsurers are focused on diversification into primary markets, Fitch notes, suggesting a catalyst for a broader variety of acquisitions.

“Achieving scale and increasing diversity through acquisitions can be beneficial because absolute capital size remains an important competitive factor in the reinsurance industry. Capital size is particularly meaningful for reinsurers, as the purpose of reinsurance is largely to absorb earnings volatility on behalf of clients,” Fitch said.

A larger reinsurer has better opportunity and greater financial ability to lead reinsurance programs, giving it more leverage to negotiate pricing and terms and conditions. “In the current competitive environment, stronger, more established reinsurers are maintaining capacity at the expense of smaller, weaker companies,” Fitch said.

“A certain amount of consolidation would be a modest positive for the reinsurance sector, as a reduction in the number of reinsurers and associated underwriting capacity would be likely to ease competitive pressures,” the Fitch statement said.

Fitch affirmed RenRe’s ‘A+’ financial strength rating following the deal announcement, but noted that generally, for an acquirer, a consolidating transaction could be a credit positive or negative as M&A deals present a unique set of risk exposures—execution and integration risk.

In affirming RenRe, Fitch said the rating agency views the deal as a “slight credit negative” for RenRe in the near term due to the execution and integration risk, adding, however, that successful execution could provide longer-term positive credit benefits through diversification away from property catastrophe risk and into casualty and specialty business.

Separately, Standard & Poor’s also affirmed its “AA-” ratings for RenRe’s operating subsidiaries, while A.M. Best put “A+” ratings under review with negative implications.