Last week, Allied World Assurance Company Holdings, AG and Transatlantic Holdings, Inc. 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.
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.
Combined capital "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, later noting that one area of opportunity is property-catastrophe reinsurance where Transatlantic expects to take advantage of improving market conditions to grow what is currently a small book (roughly 10 percent of the combined pie) next year.
The capital base "makes us a market leader with producers across industry cycles," Sapnar adds. "In a soft market, size gives you more clout and options.
Transatlantic brings $5 billion in capital to the merged enterprise, 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.
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 and specialty lines.
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.
Carmilani stressed that the specialty books are complementary. Even where it might look like the two merged entities are focused on the in same business, they are not, he said, noting for example that Transatlantic focuses on physician with treaty reinsurance in the med mal space, while Allied World's primary insurance med mal book is focused on hospitals and other facilities.
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.
In his answer, he also referred to the international model for doing reinsurance business, noting that reinsurers don't need physical plants or multiple offices in places like the U.K, Germany, France, Asia and Europe to compete. "You can do that with hubs, he said, noting that most of what Allied World writes "in the insurance area in emerging markets now is mostly wholesaled in hubs. This gives us access to [those] on a much broader bigger scale," 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.
The Allied World-Transatlantic merger is expected to close in the fourth quarter.
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