Japan-based insurance giant Tokio Marine & Nichido FireInsurance Company Ltd. (TMNF) said they had reached agreement toacquire London-headquartered Kiln Ltd. for ?442.2 million ($893.8million at current exchange rates).

According to the companies, the transaction will be implementedunder Bermuda law, where Kiln is incorporated. They said theacquisition represents a premium of approximately 40.8 percent overMonday's closing of 106.5 pence per share price before news of salediscussions was announced.

A.M. Best greeted the announcement by putting Kiln ratings underreview with positive implications.

Kiln's principal United Kingdom operating company--R J Kiln& Company Ltd.--is managing agent to four syndicates at Lloyd'sof London, and, in terms of capacity, is the fourth-largest agencytrading in the Lloyd's insurance market.

In addition to Bermuda and London, Kiln has operations in HongKong, Singapore, South Africa and Belgium.

TMNF said it sees Kiln as playing a pivotal role in theexpansion of its international underwriting operations and inenhancing its existing overseas activities. The company said itintends to retain "the culture, identity and brand of Kiln."

TMNF said further that it will work with Kiln management todevelop a joint growth strategy and create a major underwritingplatform for international commercial insurance and reinsurance inthe United Kingdom, United States, Continental Europe and Asia.

The Kiln board said it will recommend approval of theacquisition at a special general meeting, and a shareholdercircular setting out the details of the acquisition and theapproval procedures will be sent to Kiln shareholders shortly. Theacquisition is expected to become effective during the firstquarter of 2008, Kiln said.

Kiln said its previously announced capital return is no longerexpected to proceed, but the sale of W.R. Berkley Insurance(Europe) Ltd is due to continue.

The financial adviser to TMNF in the deal is FPK, and LexiconPartners is acting as financial adviser to Kiln.

TMNF President Shuzo Sumi said in a statement his company hashad a close relationship with Kiln Group since its formation in1962, and believes "we share the same fundamental values andbusiness philosophy."

He called the agreement an "important milestone in our statedstrategy to expand internationally, and we believe Kiln--with itsunderwriting expertise, skilled employees and strongbrand--represents the perfect partner."

Kiln Group CEO Edward Creasy called the acquisition an"excellent outcome for Kiln, its shareholders and employees."

Kiln's aims will be helped by becoming part of a majorinternational group, "which recognizes the strength of our brand,respects our existing culture, and which will provide excitingopportunities for Kiln's employees," said Mr. Creasy.

He added that the company believes that TMNF, "with itsestablished national and international presence, its strong balancesheet and matching values, will provide Kiln with excellentopportunities in all these respects. We look forward to an excitingfuture working with TMNF."

Millea, the ultimate holding company of the TMNF Group, islisted on both the Tokyo and Osaka Stock Exchanges. Consolidatednet premium income of the TMNF Group for the fiscal year 2006 wasapproximately ?9 billion ($18.2 billion) with net profits ofapproximately ?390 million ($788 million).

Millea was formed in April 2002 as the holding company for theinsurance businesses of two then separate insurance companies:Tokio Marine and Fire Insurance Company Ltd. ("Tokio Marine"), andNichido Fire and Marine Insurance Company Ltd. ("NichidoFire").

Millea operates in the general insurance, reinsurance and lifeinsurance sectors globally, with a presence in approximately 40countries.

A..M. Best Co. said it placed the bbb plus issuer credit ratingsof Kiln Ltd and Kiln (UK) Holdings Limited) under review withpositive implications. The firm said it takes the view that theacquisition may improve Kiln's financial flexibility.

Best said ratings of Lloyd's Syndicate 510, which is managed byR.J. Kiln & Co Ltd, remain unchanged.

This article updated Dec.17, 9:38 a.m.