In spite of the fact that two Bermuda players are engaged in a heated battle over a global-casualty reinsurer, the intensity of the contest in no way suggests that the casualty market is hardening, according to one of the potential acquirers.

“We are absolutely not calling for a turn in the casualty-reinsurance market,” says Ed Noonan, CEO of Bermuda-based Validus Holdings, which is battling to acquire Transatlantic Holdings.

Validus put in a rival $3.5 billion bid for the New York-based reinsurer in mid-July, one month after Transatlantic jointly announced a $3.2 billion merger deal with Allied World Assurance Co. Holdings, a specialty insurer which launched in Bermuda in 2002 and redomiciled to Switzerland in 2010.

“Our view is that this is the time to go defensive—to shrink your casualty business and wait for a hard market,” Noonan told NU in late July.

So why, then, is Validus making such a concerted—and seemingly contradictory—play for Transatlantic?

During a conference call on July 13 to announce Validus' proposal to acquire Transatlantic, Noonan said Validus had long “held the view that when presented with market upturn, [we] would look seriously at entering the [casualty] class.”

He continued: “We have not concluded that a market upturn is imminent. However, we do observe that accident-year results for casualty lines are unprofitable, reserve releases from prior years are dwindling and investment income is at historical lows. We see these as the seeds of a market likely to stabilize and improve over the next few years.”

Noonan told listeners: “These factors alone would not have caused us to enter the casualty market. We would be inclined to wait a bit longer. However, the availability of one of the leading global franchises at a fair valuation caused us to evaluate our position in a different context. We could wait a year or two, but the Transatlantic opportunity would no longer be available.”

THE VALIDUS VALUE-ADD

In his interview with NU, Noonan offered this take on the benefits of the deal for Transatlantic investors: “Our basic thesis for Transatlantic shareholders is that we bring really attractive earnings in a hardening short-tail market to you that makes cycle management so much easier.”

“You don't have to keep trying to find casualty business and hopefully generate a profit. You get the luxury as an underwriter [of casualty business] to say, 'This doesn't meet our standards. We'll pass and wait for a better market,'” he says.

Noonan notes that while Transatlantic is often viewed as a casualty-reinsurance company, when combined with Validus, long-tail casualty would represent only about one-quarter of the combined reinsurance book.

In addition, Noonan notes there are some classes that Transatlantic defines as “short-tail casualty” that aren't really casualty—lines such as surety, credit and accident-and-health business. “A&H settles in 18 months, and it's not a third-party coverage,” Noonan says.

“When you actually look through [Transatlantic's business], you say these aren't even casualty classes. They're really short-tail classes—and most of them we already write,” he says, concluding that when you put the two companies together, the actual percentage of long-tail casualty is only 27 percent.

And that's how Noonan can reconcile his assertion that it's the right time to be shrinking casualty business—while going aggressively after Transatlantic.

Special Reports /

Transatlantic Contest Does Not Signal Casualty-Market Change: Validus CEO

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