Posted on Jun 13, 2011 by Sergio Ulloa
Transatlantic Holdings Inc. and Allied World Assurance Company Holdings announced on Sunday the signing of a definitive merger agreement between the two firms that will create a top global specialty insurance and reinsurance company, aimed primarily at increasing business outside of North America.
The combined entity will function under a holding company structure, titled TransAllied Group Holdings AG, with invested assets of US$21 billion and total capital of US$8.5 billion, according to a joint statement issued by both companies. TransAllied will offer specialty insurance and reinsurance services that operate through two separate brands: Transatlantic Reinsurance and Allied World Insurance. The combined company will collectively inherit 39 offices located in 18 different countries worldwide.
The deal, unanimously approved by the boards of both companies, has been structured as a "merger of equals." Allied World will exchange 0.88 of their own shares for each Transatlantic Holdings common share held in a US$3.2 billion stock for stock agreement. Upon completion of the transaction, Transatlantic shareholders will hold a 58 percent stake in the combined company, with Allied World investors owning the remaining 42 percent. According to Bloomberg analytics, the new company will have a market value of about US$5.1 billion.
Allied World Assurance is a Switzerland-based specialty insurance and reinsurance provider with total assets of US$10.67 billion, as of March 31, 2011. The company, alongside the rest of the global reinsurance industry, has suffered in their most recent earnings reports due to the unprecedented string of natural disasters
that struck the Asia-Pacific region in the first half of this year.
Transatlantic offers reinsurance capacity and analysis for a range of property and casualty products for insurance and reinsurance companies. The company was previously controlled by American International Group Inc, which sold their stake as part of its efforts to repay its bailout package to the US government. The company posted a narrower-than-expected loss for the first quarter of 2011, despite the catastrophe losses from severe natural disasters.
Robert Orlich, President and CEO at Transatlantic, outlined the mergers' objectives in his statement: "Transatlantic and Allied World make great merger partners in every sense of the term. For Transatlantic in particular, the transaction delivers strategic and financial benefits, including primary insurance operations, a Lloyd's presence and a bigger capital base outside the U.S., allowing for greater capital allocation flexibility. I look forward to helping see this transaction through to completion, after which Scott and Mike are the right team to move this forward and capitalize on the great opportunity for the new company to create value for shareholders." Mr. Olrich, will step down from his position once the deal is finalized, which is expected to happen during the fourth quarter this year after it receives shareholder and regulatory approval, among other customary closing conditions.
Allied World Chief Executive Scott Carmilani will become the CEO and president of TransAllied, tasked with oversight over the global organization. Mike Sapnar, the current Vice President and CEO of Transatlantic, will become the President and CEO of Global Reinsurance.
In the joint statement, Mr. Carmilani further expressed how Transatlantic and Allied World would make for great merger partners: "I have long admired Bob Orlich, Mike Sapnar and the management team at Transatlantic and the specialty reinsurance business they have built, which very much complements Allied World's specialty insurance focus. This merger will only serve to strengthen the combined company's market profile and competitive position, greatly enhancing our capabilities to post strong returns through all phases of the industry cycle. Both management teams have a strong track record of building value for their shareholders over the long run, and we are eager to continue doing just that as part of one organization."
The joint company, its shareholders, clients, employees and trading partners will all benefit, according to the statement, from a larger capital base and greater business diversification, resulting from the additional growth opportunities and enhanced structural flexibility the expanded distribution and global platform capacity that the merger will provide.
Upon completion of the deal, Carmilani and Sapnar will serve on the combined company's board of directors. The new company will have an 11 member board, six seats appointed by Transatlantic Holdings and five by Allied World. Both companies will host a joint conference call this week to further discuss the proposed merger with investors.
International credit rating and insurance information agency, Moody's, has already responded to the proposed merger, placing Allied World under review for a possible upgrade and affirming the ratings of Transatlantic Re. "The rating agency believes the merger will provide both franchises with strong benefits," Moody's reported.
Market analysts have been expecting an increase in merger and acquisition activity amongst mid-sized global insurers and reinsurers, forecasting that a soft pricing environment
would enable companies to combine to gain scale and return sufficient capital to investors. Last year's notable activity include Max Capital Group's merger with rival Harbor Point Ltd. to form Alterra Capital Holdings Ltd. This deal between Transatlantic and Allied World could be the first of many such mergers in an upcoming wave of market consolidation.
Insurance Companies Mentioned
Allied World Assurance
Allied World Assurance is a global insurance and reinsurance business. The company operates through a worldwide network of offices in several major US cities, Hong Kong, London, Singapore and Zug, Switzerland. Allied World Assurance provide property, casualty, insurance and specialty reinsurance products.
Transatlantic Holdings Inc. is a leading international reinsurance company, headquartered in New York. Through it's subsidiaries, Transatlantic offers reinsurance capacity and analysis for a wide array of property and casualty products, with a particular concentration on specialty risks.