Pair of Analysts Favorable to Allied World and Transatlantic Merger
By KATIE KUEHNER-HEBERT, a freelance writer based in San Diego with more than two decades of journalism experience and expertise in financial writing
The merger between New York-based Transatlantic Holdings Inc. and Allied World Assurance Co. Holdings AG in Switzerland was well received this week by two analysts, one of whom said the deal was likely to create a "meaningful global insurance and reinsurance player" in the global casualty marketplace.
"Strategically, the combination will result in the creation of a meaningful global insurance and reinsurance player with a broad geographic and product-line spread, a sizable capital base and a deep management team," wrote Cliff Gallant, an analyst at Keefe, Bruyette & Woods.
The deal, announced June 12, creates TransAllied Group Holdings AG, a new holding company that would offer specialty insurance and reinsurance products and services through two brands, Transatlantic Reinsurance and Allied World Insurance.
Both Allied and Transatlantic stand to benefit, said Gallant, with the combined book made up of roughly 84 percent reinsurance and 16 percent insurance, and about 70 percent in casualty lines and 30 percent in property. The transaction should also be modestly accretive to earnings, Gallant said.
Morgan Stanley & Co. Inc. analyst Gregory W. Locraft, in a June 13 note, said TransAllied should be a "dominant" offshore casualty global reinsurer and a lead casualty market around the world.
The combined entity would have total invested assets of $21 billion, total shareholders' equity of nearly $7 billion and total capital of $8.5 billion.
Locraft said the deal's valuation at 79 percent of first-quarter book value "leaves the door open for rival bidders."
"Other suitors need to have a combination of (1) balance sheet size and (2) desire for long-tail, casualty-lines exposure late in the underwriting cycle which has proven a drag on public multiples," Locraft wrote.
In fact, according to Bloomberg, Transatlantic shareholder Tweedy Browne Co. has come out in opposition of the merger because it believes the price to be too low.
Jack Sennott, Allied World's chief corporate strategy officer, in a statement Wednesday, wrote that the merger would create "a very powerful combination," providing global specialty insurance and reinsurance with "sizeable market share."
The global entity would offer professional liability, medical malpractice, accident and health, property catastrophe, surety and credit, and specialty casualty through 39 offices in 18 countries. It would have 1,300 people with nearly 500 employees being dedicated to non-U.S. business, Sennott wrote.
Nearly 40 percent of the new organizations business would come from outside the United States, and the merger provides both companies with "greater geographic scale and diversification," he wrote.
"Finally, in addition to all the areas mentioned above, being a more significant capitalized market makes us more desirable to customers and more meaningful to distribution partners," Sennott also wrote.
Sennott did not respond to Locraft's comments about potential rival bidders, though he said that the transaction would give Allied World shareholders forecasted double-digit earnings-per-share accretion and enhanced return-on-equity in the first year. He also estimated savings to the two companies of $50 million in the first year.
The transaction is structured as a merger of equals, with shareholders of Transatlantic receiving 0.88 Allied World common shares for each Transatlantic common share held.
Transatlantic shareholders would own about 58 percent of the combined company and Allied World shareholders would own about 42 percent.
Scott Carmilani, Allied World's chairman, president and chief executive officer, would serve as president and CEO of the combined entity. Mike Sapnar, Transatlantic's executive vice president and chief operating officer, would become president and CEO of global reinsurance.
Both would serve on the 11-member board, six of which would be appointed by Transatlantic and five by Allied World.
Richard Press, Transatlantic's nonexecutive chairman, would continue to serve in that capacity on the new board for the first year after the close of the merger. Transatlantic's president and CEO Robert Orlich will retire.
June 16, 2011
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