As I was finishing a feature about merger-and-acquisition activity in the insurance industry last month, a Bloomberg news item caught my eye.

“Transatlantic May Draw Rival Bid to $3.2 Billion Merger Deal,” the headline read, suggesting that alternative suitors for Transatlantic Holdings Inc.—the reinsurer that agreed to merge with specialty-insurer Allied World Assurance Co. Holdings AG in mid-June—might kill the deal.

Executives involved in the deal touted this as a “specialty-lines merger”—the subject of my M&A feature for the June 20 NU. Yet despite the specialty bent of both firms, the deal was not consistent with the overriding trend I reported on—buyers seeking small, niche carriers and agencies to add new flavors to their specialty books.

“Consolidation”—putting two large organizations together to gain scale—was a trend of a bygone era, experts said.

Still, a large capital base makes sense for companies like TransAllied (the post-merger name), which are trying to move opportunistically into an improving property-catastrophe reinsurance market. And the more I heard Transatlantic and Allied World executives describe their complementary books—reinsurance for management and professional lines vs. primary insurance targeting different classes of these specialty lines—the more the deal made sense.

But just for fun, the Bloomberg article started me wondering about those other potential buyers of Transatlantic. Here are some idle musings.

First on my list is Validus: No stranger to hostile deals, having ruined the party for Max Re when it wanted to merge with IPC Re two years ago. And then there was an odd comment from CEO Edward Noonan about wanting to move into the U.S. casualty space at some point that NU reported exclusively in March 2010.

Su's Verdict: Too soon for Validus to start making that move, especially with the market improving in the firm's sweet spot of short-tail reinsurance lines like prop-cat. Next…

Alterra? That's the company that was Max before merging with Harbor Point Re in a deal with a lot of similarities to the TransAllied deal.

Su's Verdict: Too similar to the deal with Harbor Point. No compelling reason to target Transatlantic. Next…

Flagstone Re had its bid in for IPC right behind Validus, and it wants a bigger capital base.

Su's Verdict: Nothing NU has reported suggests Flagstone wants to move beyond its core focus—short-tail reinsurance.

Everest Re.: CEO Joe Taranto has roots in AIG, which once had a big stake in Transatlantic (that is before AIG sold out for over $1 billion to help repay the government.) Having once served as president of Transatlantic, he knows the company as well as Scott Carmilani, another AIG alumus and CEO of Allied World.

Su's Verdict: Everest has been moving into specialty-insurance areas like D&O and E&O, potentially making Everest a better suitor for Allied than Transaltantic. Next…

All the prior guesses considered only appetites and potential business synergies not capital bases. Who's got the capital?

ACE has plenty waiting to be deployed.

Su's Verdict: May be too much business overlap. Same holds for AXIS, Arch, Endurance—all with hefty casualty/specialty appetites. Next.

Running out of names…who else is there?

Chartis, formerly AIG. Specialty-lines insurance—a great compliment to a specialty reinsurer.

Su's Verdict: Been there, done that. Clearly ain't gonna happen.

Anyone else want to play? Any guesses who might have been the other suitor(s)?

Susanne Sclafane

Managing Editor

Special Reports /

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