NU Online News Service, July 19, 2:17 p.m. EDT
Validus Holdings’ bid for Transatlantic Holdings, if successful, will be credit-positive for Validus due to strategic benefits, but credit-negative for Transatlantic due to higher catastrophe leverage, according to Moody’s.
Validus made its bid for Transatlantic last Tuesday, about a month after Transatlantic agreed to a merger with Allied World Assurance Co. Holdings. Moody’s says, “Either Validus’ or Allied World’s proposal would make the combined company one of the biggest reinsurers in Bermuda and raise its profile in the global reinsurance market.”
Speaking to the benefits to Validus should its bid prevail, Moody’s notes that Transatlantic would bring to the table “a highly reputable reinsurance franchise” with “more points of contact” with international markets.
As for the risks to Transatlantic, Moody’s says the Validus proposal “would lead to catastrophe leverage above Transatlantic’s current disposition, which, together with a new capital structure, would be credit-negative for Transatlantic.”
Moody’s also says Validus’ proposal would exert more pressure on the combined entity than Allied World’s proposal because of the cash component of the deal, as opposed to Allied World’s stock-for-stock merger.”
Regarding the benefits both bidders bring to the table, Moody’s says Allied World brings a casualty-insurance platform that would allow management to shift between reinsurance and insurance, depending on market conditions, while Validus offers a property-business mix that would provide more balance to Transatlantic’s casualty orientation without adding to casualty-reserve risk.