NU Online News Service, June 13, 2:51 p.m. EST

Yesterday, Transatlantic Holdings, Inc. and Allied World Assurance Company Holdings, AG announced a $3.2 billion merger deal that executives say will create a global specialty insurer and reinsurer operating in 18 countries on six continents.

In addition, the “new and vibrant competitor” in the global marketplace, to be known as TransAllied Group Holdings, will manage $8.5 billion in total capital, Robert Orlich, president and CEO of Transatlantic, said on a conference call describing the deal this morning.

The capital figure puts TransAllied behind global giants ACE Limited and XL Group and ahead of PartnerRe, according to a slide that executives of the new entity presented during this morning’s call.

The combined capital base “puts us in a very competitive position [and] establishes TransAllied as a first port of call for any opportunities that become available,” says Mike Sapnar, executive vice president and chief operating officer of Transatlantic. “It makes us a market leader with producers across industry cycles. In a soft market, size gives you more clout and options,” Sapnar adds.

Transatlantic brings $5 billion in capital to the merged entity, with Allied World bringing roughly $3.5 billion in capital, says Scott Carmilani, chairman, president, and CEO of Allied World.

In addition, the combined entity will have total invested assets of $21 billion, and combined gross premiums of nearly $5.9 billion—$4.1 billion on the reinsurance side from Transatlantic, and $1.8 billion from Allied World, which writes mainly specialty insurance with a sprinkling of reinsurance, he says.

The transaction is being structured as a merger of equals, with shareholders of Transatlantic receiving 0.88 Allied World common shares for each Transatlantic common share held, the New York and Switzerland-based companies say.

Following the merger, which is expected to close in the fourth quarter, Transatlantic shareholders will own approximately 58 percent of the combined company, with Allied World shareholders owning roughly 42 percent.

Orlich, who will retire upon the close of the deal, describes it as a “homerun for each company,” adding that both deal participants view the merger as a “grand slam for the combined entity.”

“Packaged together, we are better positioned to leverage our respective strengths” in key global markets, especially Europe and emerging markets, he says.

Orlich and Carmilani note that the insurance and reinsurance operations under the TransAllied Group Holdings umbrella will continue to offer their respective products under two distinct existing brands—Transatlantic Reinsurance and Allied World Insurance—going forward.

Sapnar, who will serve as president and CEO of global reinsurance going forward, says the merged entity will have 39 locations around the world all together, with nearly 500 of its 1,300 employees dedicated to non-U.S. business.

Carmilani will become president and CEO of the new holding company.

TransAllied will “have the ability to write business at the source, leveraging local market knowledge and relationships,” Sapnar says. A pie chart shown during his remarks put 52 percent of the merged organization’s global premiums in the United States, 25 percent in Europe and the balance elsewhere.

The global reach “enables us to identity and seize opportunities ahead of competitors, especially in emerging markets,” he says, adding that the deal structure gives the company the capability to allocate capital to the highest return geographies.

Both Carmilani and Sapnar touted the specialty bent of both organizations, with Sapnar noting that the combined entity will have half its business in specialty lines like D&O, E&O, med mal, surety and credit.

The mix of business is now heavily reinsurance—a fact not lost on one analyst, who questioned whether this marked a change in strategic direction for Allied World. Moving in a seemingly different direction in a recent prior deal, Allied World bulked up its U.S. specialty insurance capabilities with the $550 million acquisition of Darwin Professional Underwriter, a small-account professional liability insurer in 2008.

Carmilani replied that “the concentration in specialty insurance domestically in the United States” that Allied World has been building “does not lose focus whatsoever. We will continue to grow that, continue to pursue that, when and where it makes sense,” he said.

Prior to the Darwin deal, Allied World bought Converium Insurance (North America) in a deal that Carmilani then told NU would be a first step in his company’s strategy to grow its U.S. reinsurance book.

Reacting to the deal, A.M. Best and Moody’s announced that financial strength ratings on both entities were unchanged, although Moody’s put Allied World’s A2 on review for possible upgrade. Best says all entities are rated A, and Carmilani confirmed that Standard & Poor’s, which upgraded Allied World to “A” last week, has also affirmed Transatlantic’s “A-plus” rating.

American International Group owned a majority stake in Transatlantic until 2009, when AIG sold its stake for over $1 billion to help repay government bailout funds.

Special Reports /

Transatlantic Re, Allied World Agree To $3.2B Merger

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