AWAC Acquiring Darwin For $550M

AWAC, through its subsidiaries, is a global provider of insurance and reinsurance solutions. In its most recent acquisition prior to the Darwin announcement, the Bermuda company bought Converium Insurance (North America).

Mr. Carmilani told NU earlier this year that the Converium deal, which closed in January, was a step in his company's strategy to grow its U.S. reinsurance book.

He noted, however, that AWAC's mix of business has always been tilted toward insurance–nearly 60 percent insurance versus 40 percent reinsurance. He also said the bias toward insurance wouldn't change in 2008.

At the time, he said the company would engage in a strategy "to diversify geographically and by product."

While both AWAC and Darwin write specialty business, with a particular focus on professional liability and some property-casualty programs, Darwin focuses on small-account business.

During the conference call, Mr. Carmilani said the two insurance books are complementary, noting that AWAC's focus in these same specialty product areas is on large-account business. In addition, he noted that AWAC writes high- and middle-excess layers, as opposed to the primary business that Darwin writes.

He also highlighted Darwin's strengths in the health care professional liability sector–through product and risk management service capabilities–and a Web-based underwriting system, "i-bind."

In past interviews, Stephen Sills, Darwin's president and CEO–who will retire upon the deal's closing–has told NU that the i-bind system was designed to create an easier experience for specialty brokers placing small professional and management liability policies, and to lower the costs of writing them for the carrier.

Mr. Carmilani said in the conference call that Allied World does not plan to make any changes to i-bind–except perhaps to make it a multicurrency system, so it can be used to place business outside the United States.

He also said the health care segment will jump from 3 percent of AWAC's business to 13 percent. In addition, professional liability will rise from 18 percent to 21 percent.

Jack Sennott, Darwin's chief financial officer, was asked during the conference call about the company's reasons for selling. He echoed Mr. Carmilani's statements about the businesses being complementary.

Asked if Allied World was the only potential buyer, he said the board formed a special committee and engaged in a formal process to entertain offers in the first quarter, adding that through an investment bank, "more than two handfuls of companies" had expressed interest.

In the end, "we were pleased with the economics and fit going forward" with Allied World, Mr. Sennott said.

Moody's Investors Service affirmed its "A2″ insurance financial strength ratings on Allied World's operating subsidiaries and its "Baa1″ senior unsecured debt rating. However, Moody's changed its rating outlook to "negative" from "stable."

Moody's said its affirmation of Allied World's ratings "reflects its market position as a specialty niche provider of property and casualty insurance and reinsurance, its low underwriting and financial leverage since its July 2006 initial public offering, and a high-quality investment portfolio."

The rating agency also cited Allied World's "geographic and growing product diversification, and the absence of legacy mass tort exposures."

However, Moody's added, "over the near-to-medium term, failure to successfully manage the current industry down-cycle, outsized growth in long-tail casualty lines including Darwin, and/or significantly increased underwriting or financial leverage could lead to a downgrade."