Bermuda-based Argo Group International Holdings announced today that it has made a $272 million cash offer to acquire Heritage Underwriting Agency, Plc, a Lloyd's insurer, creating a combination that Argo said broadens its international presence.

During a conference call this morning, Argo Chief Executive Mark Watson noted the "more international approach" his company has taken in recent years. In particular, he said Argo's merger last year with property-catastrophe reinsurer PXRE Group established an international reinsurance operation, now named Peleus Re, in Bermuda.

Heritage and Argo are similar operations in that both target small-account business, he said, noting, however, that Argo's U.S. specialty insurance operations, Argonaut Specialty and Colony Insurance, focus on casualty risks, while Heritage has a book that is predominately property.

In addition to a worldwide property unit focusing on commercial accounts, he noted that Heritage does write some liability risks, but these are non-U.S. liability risks, making the operations complementary to Argo's U.S. operations.

The deal is subject to the approval of Heritage shareholders and legal and regulatory requirements.

Earlier this year, Bermuda-based Ironshore attempted to acquire Heritage, but talks broke down over price, Ironshore CEO Robert Deutsch confirmed in February.

According to Argo, Heritage managed total premium capacity of ?315m ($630 million) in 2007, and capacity is similar for 2008.

Gross premiums for Argo Group were nearly $1.2 billion in 2007.

In reaction to the offer, Standard & Poor's Ratings Services in New York affirmed the "A-minus" financial strength rating on Argo but said the rating outlook remains negative.

S&P noted that funding for the deal will not impact the strong capitalization of the U.S. insurance operations. Among negatives it mentioned is the possibility that the Bermuda reinsurance operations will expose the Argo Group to large catastrophe losses through Peleus before management can demonstrate strong property-catastrophe risk management.

S&P said its initial concerns over this issue had diminished since the merger with PXRE last year, but the proposed acquisition of Heritage could now materially change the risk profile of Peleus.

"In particular, acquiring Heritage would significantly increase the amount of catastrophe-exposed property business written," S&P said, adding that it will meet with management to discuss its growth and diversification plans, underwriting controls, and risk-management tools and processes.

Argo's announcement today follows a separate announcement of a move into Lloyd's by another Bermuda specialty company, Aspen Insurance Holdings Limited, last week.

Last Friday, Aspen announced that it received approval from Lloyd's to set up a new Lloyd's Syndicate, called Syndicate 4711 with the pseudonym of "ASP."

Syndicate 4711 will commence underwriting from early April for business incepting from May 1, Aspen said.

Syndicate 4711 is managed by a newly created Lloyd's managing agency, Aspen Managing Agency Limited (AMAL), which is authorized by the Financial Services Authority in the United Kingdom.

Aspen said Syndicate 4711's business plan for this year is to renew certain participations on selected classes of business--energy, hull, marine liability, transportation and others--currently written by its existing UK company, Aspen Insurance UK Limited.

For 2008, Aspen said it plans to write roughly $100 million of its gross written premiums in Syndicate 4711.

In 2007, Aspen reported gross written premiums of $1.8 billion.

Special Reports /

Argo Buying Lloyd's Heritage For $272 Million

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