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EC News (20th September 2018)

  • Publish Date: Posted over 5 years ago
  • Author:by Alan Jarque

Round-up of the weekly news and developments from the global (re)insurance market with stories from Marsh & McLennan, China Re, Tokio Marine Kiln and more.

MMC to buy JLT for $5.6bn

Marsh & McLennan Companies (MMC) is set to acquire London-listed rival JLT in a deal valuing the firm at $5.6bn.

Under the terms of the transaction, JLT shareholders will receive £19.15 pounds per share, representing a 33.7 percent premium to the broker’s closing share price of £14.32 on 17 September.

The cash consideration equates to $5.6bn in fully diluted equity value, or an estimated enterprise value of $6.4bn. The firm said the transaction will be funded by a combination of cash in hand and proceeds from debt financing.

The deal not only cements MMC’s position as the world’s largest insurance broker but will also create the industry’s largest reinsurance broker based on 2017 revenues, according to analysis by Re-Insurance magazine.

MMC said that it expects the acquisition to increase its overall revenues to $17bn and add another 10,000 people to its global headcount.

The company said that is expects to achieve annual cost synergies of c.$250mn that will be realised over the next three years, adding that realisation of these synergies will result in a one-time integration cost of $375mn.

In a US Securities and Exchange Commission filing dated 18 September, MMC revealed that a substantial portion of the annual cost synergies could come from headcount reductions in addition to savings in real estate, IT, outside services and other initiatives.

The firm said that it expects a potential headcount reduction of between 2 to 5 percent of its total group workforce, across all geographies and “from a broad range of job categories”, including functional support areas such as finance, human resources, IT, operations, legal and administrative support staff.

With the combined group housing around 75,000 employees, this means that up to 3,750 jobs could be at risk.

In explaining the rationale of the deal, MMC said that the acquisition of JLT accelerates its strategy “to be the preeminent global firm in the areas of risk, strategy and people.”

“JLT's track record of strong organic growth and attractive geographic diversification enhance MMC's ability to accelerate growth and margin expansion across products and geographies,” it added.

“The acquisition of Jardine Lloyd Thompson creates a compelling value proposition for our clients, our colleagues and our shareholders,” remarked MMC president and CEO, Dan Glaser.

He added: “The complementary fit between our companies creates a platform to deliver exceptional service to clients and opportunities for our colleagues.

“On a personal level, I have come to know, and respect, Dominic Burke and his management team from my time both at MMC and as an underwriter. I am confident that with the addition of the talented colleagues of JLT, Marsh & McLennan will be an even stronger and more dynamic company."

Upon completion of the transaction, JLT group chief executive Dominic Burke will join MMC as vice chairman and will serve as a member of MMC’s executive committee.

Burke commented: “I am enormously proud of what JLT has achieved, founded on our people, our culture and our unwavering commitment to our clients.”

“MMC is, and always has been, one of our most respected competitors and I believe that, combined, we will create a group that will truly stand as a beacon for our industry.”

According to the Financial Times, discussions surrounding the deal only began on 7 September, when Glaser went to meet Burke.

MMC has said that it has received irrevocable undertakings from JLT's largest shareholder, Jardine Matheson Holdings, and JLT directors who collectively represent 40.5 percent of the issued and outstanding JLT shares in support of the transaction.

The deal is slated to close in spring of 2019, subject to necessary regulatory and shareholder approvals.

China Re seals $950mn deal for Chaucer

China Re has struck a $950mn deal to acquire Lloyd’s carrier Chaucer from its US owner The Hanover.

The deal will see China Re pay The Hanover a cash consideration of $820mn, with a further $45mn contingent payment which may be adjusted downwards if catastrophe losses incurred in 2018 are above a certain threshold.

In addition, The Hanover will also receive an $85mn pre-signing dividend from Chaucer, bringing the total consideration to $950mn.

The Hanover said the deal represented a 1.66x multiple to Chaucer’s $520mn tangible equity as of 30 June 2018.

The US speciality carrier added that the transaction is structured so that, subject to certain exceptions, the risks and rewards of Chaucer’s business from 1 April 2018 until closing, are transferred to China Re.

In a statement, China Re said that the acquisition will accelerate its “overseas deployment in support of its international development strategy.”

“As well as boosting overseas business volumes, Chaucer will enhance China Re’s underwriting and technical expertise, crucial to successfully building out its business and further diversifying its portfolio worldwide,” it continued, adding that both business’ portfolios are highly complementary in terms of territory and business mix.

The deal will increase China Re’s foothold at Lloyd’s, having first entered the market when it created a special purpose arrangement (SPA) with Catlin. It now operates as standalone Syndicate 2088, writing £155mn of premiums in 2017.

In comparison, Chaucer is the eleventh-largest carrier at Lloyd’s writing around £1bn of gross premiums in 2017, with the bulk emanating from Syndicate 1084 and the remainder from nuclear Syndicate 1176 and its Africa-focussed SPA syndicate 6130 in partnership with Axa.

In its announcement, Chaucer confirmed that its senior management team will continue to lead the business under the Chaucer brand through their Lloyd’s syndicates, international network, and underwriting agencies, and Chaucer Insurance Company DAC, their insurance company in Dublin.

“The acquisition of Chaucer group by China Re represents a significant milestone in our international development, as well as the next step following the establishment of China Re Syndicate 2088 at Lloyd’s and the Singapore Branch,” said China Re chairman Yuan Linjiang.

“The combination of China Re’s financial strength and access to capital will help consolidate Chaucer’s position and create new development opportunities.”

Chaucer CEO John Fowle said he had been “impressed by the experience, commitment, and professionalism of China Re” since his first meetings with its executives and that he was “excited about the future together”.

“At Chaucer, we are fully committed to delivering a first class underwriting and claims service to our brokers, coverholders and clients, and believe that the support of China Re will enable us to build on our success to date and accelerate our strategy which has profitable growth at its core.”

The transaction is anticipated to close later this year or in the first quarter of 2019, subject to regulatory approvals and other customary closing conditions.

Tokio Marine Kiln names Patel as CFO

Tokio Marine Kiln (TMK) has appointed Reeken Patel as its new chief financial officer (CFO).

Patel, who will assume his new position on 1 October, succeeds James Dover who has chosen to leave the business after what the carrier described as a “highly productive twelve years at TMK and eight years as its CFO”.

Prior to his new appointment, Patel served as group CFO at Novae (now Axis), responsible for overseeing the finance, risk, actuarial and investment teams. He also played a significant role in Novae’s strategic development, ultimately overseeing the sale of the business to Axis last year.

Before Novae, Patel was a partner at PwC and its London Market actuarial practice leader.

“I am really pleased to welcome Reeken to our team at TMK,” remarked TMK group CEO Charles Franks.

“His background and outstanding track record speak for themselves and he will bring a new perspective and energy to the development of our business. Tokio Marine has developed a powerful international presence over the last 10 years and Reeken will be key to ensuring we continue to advance our strategy within the TM Group,” he added.

Patel commented: “I am genuinely excited to be joining TMK. It’s one of the major businesses in the London Market and has created a solid platform for growth. I look forward to playing my part in building the business further over the coming years.”

Enstar terminates sales process for Atrium and StarStone

Enstar has announced that it is no longer exploring a potential sale of its active underwriting businesses, Atrium and StarStone.

In June, the carrier revealed that it had, alongside fellow investor Stone Point Capital, retained investment bank Evercore to “assist in evaluating market interest regarding the potential sale” of the two carriers.

However, in a follow-up US Securities and Exchange Commission filing dated 18 September, Enstar said that it had now terminated this process.

“The Company and Stone Point initially engaged an investment bank to assess interest in these businesses in light of their favourable perception of market conditions (following several recent transactions in the industry), but have decided to stop the evaluation process and continue as owners of StarStone and Atrium,” it stated.

Enstar and Stone Point acquired Atrium, which manages Lloyd’s Syndicate 609, for around $153mn in 2013, as part of the legacy firm’s efforts to move into the live non-life underwriting market.

Enstar owns 60 percent of the Lloyd’s managing agency, while the Stone Point-managed Trident V fund owns the remaining 40 percent.

Meanwhile, in 2014, Enstar and Stone Point completed a $692mn deal to purchase Torus, which later rebranded to StarStone in 2015, continuing its expansion into live underwriting.

StarStone is owned 59 percent by Enstar, with the Trident V funds managed by Stone Point owning 39.3 percent and Dowling Capital Partners owning 1.7 percent.

Willis Re reorganises specialty business

Willis Re has restructured its specialty business, which has seen deputy CEO Jonathan Marsh take the role of chairman whilst Graeme Moore remains as CEO.

Meanwhile, Printhan Sothinathan has been appointed chief strategy officer. He will continue to manage the specialty analytics operations alongside his new responsibilities.

In terms of the structure of the business, Willis Re Specialty will now be comprised of two core units: marine, energy & aerospace, which will be led by Tim Compton; and specialty P&C, which will be led by Andy Law.

Within the marine, energy & aerospace unit, Nick Croxford will lead the marine, energy & fac division, while Jason Cudlipp will lead P&I, and Mark Hudson will lead aerospace.

Meanwhile, within the specialty P&C unit, Chris Hayday will lead the property D&F & specialty lines division, Chirag Shah will lead casualty, and Paddy Ellis will lead retro.

“Willis Re Specialty continues to evolve its business model ensuring it is able to provide the full spectrum of risk & capital advice to meet the demands of our clients,” said Moore.

“The reshaping of the Specialty business unit, which has progressed significantly over the last three years, has produced a business with a much stronger presence and dynamic client offering in the London market, which is reflected in revenue growth.

“Furthermore, the revised structure has allowed us to elevate key talent into management positions, where their proven talent will assist in the continued evolution and further success for the business unit.”

Activist investor pressures Scor over Covea approach rebuff: reports

French activist investment fund CIAM is placing pressure on Scor’s management team after the French reinsurer rejected a takeover offer from Covéa last month, according to reports.

Covéa, a French mutually owned insurance company which owns around an 8.5 percent stake in Scor, made a friendly EUR8.2bn approach for Scor in August.

However, in a statement confirming that it had turned down the offer, Scor said that the takeover was “fundamentally incompatible” with its strategy of independence and that it would “jeopardize the group’s strong value-creating strategy and that it reflects neither the intrinsic value nor the strategic value of Scor”.

According to Reuters, CIAM has bought a 0.77 percent stake in Scor and has sent a letter the French reinsurer’s chairman and CEO Denis Kessler, asking him to engage in talks with Covéa regarding the takeover offer and also threatened legal action.

CIAM’s president, Catherine Bejral, said in its letter to Scor that the management was legally obliged to talk to Covea, Reuters said.

“I would not hesitate to hold you and the Board of Directors legally liable for a decision which would constitute gross management negligence,” she added.

In the letter, Bejral also asked Kessler to detail his proposals to boost the share price of Scor above the level offered by Covéa.

“I am eager to hear the measures that you plan to take to ensure that Scor’s share price reflects its intrinsic value, which, as your statement implies, should be well above 43 euros per share,” she said.

The news follows rumours that Covéa is continuing to look at new approaches to a potential acquisition of Scor.

Sources at Reuters said that Covéa is seeking to convince Scor’s board to accept a new deal by proposing a higher bid and offering to keep the firm listed.

Carlyle acquires majority stake in Sedgwick in $6.7bn takeover

Private equity firm The Carlyle Group has agreed to acquire a majority stake in claims management group Sedgwick for $6.7bn.

Carlyle will buyout existing majority shareholder KKR, which will fully exit its position following the transaction. KKR and company management paid $2.4bn in 2014 to buy Sedgwick.

Funds managed by Stone Point Capital LLC and Caisse de dépôt et placement du Québec (CDPQ), together with Sedgwick management, will remain minority investors.

Sedgwick is a leading global provider of technology-enabled risk, benefits and integrated business solutions. The company provides a broad range of resources tailored to clients’ specific needs in casualty, property, marine, benefits and other lines.

On an annual basis, Sedgwick handles more than 3.6 million claims and has fiduciary responsibility for claim payments totalling more than $19.5bn.

“At Sedgwick, taking care of people is at the heart of everything we do, and I am proud that The Carlyle Group appreciates the value our colleagues create when they put our caring counts philosophy into practice,” said Dave North, president and CEO of Sedgwick.

“We are humbled by the confidence they have shown in our business model, and we look forward to partnering with Carlyle on developing and delivering innovative solutions for our clients around the world. We are grateful for the strong and value-added partnership with KKR over the last handful of years.”

Meanwhile, Stephen Wise, managing director and global head of healthcare for The Carlyle Group, said, “Dave North and Sedgwick’s world-class management team have built the company into an industry leader over the last two decades.

“We are excited to collaborate with Sedgwick, which has distinguished itself by constantly improving the claims management and loss adjusting process to the benefit of all key stakeholders, including its colleagues, customers, insurance companies and brokers.”

Equity capital for the investment will come from Carlyle Partners VII, an $18.5bn fund that focuses on buyout transactions in the US, and Carlyle Global Financial Services Partners III, L.P., a dedicated financial services buyout fund.

The deal is expected to close later this year, subject to regulatory approvals and other customary closing conditions.

BMS strengthens energy division with four appointments

Independent (re)insurance broker BMS Group has bolstered its energy division with four new hires.

Lynsey Green, Kevin Page, Robin Gibbs and Darren Jones will all join the firm early next year and will report to James Chicken, managing director of the BMS’ energy division.

Page, Gibbs and Jones will all join from rival Price Forbes, whilst Green will move over from JLT.

Page, who has over 30 years’ experience, has focused on US and multi-national clients in the international power and nuclear sectors for the last decade.

Gibbs began his career at JLT in the natural resources team, before joining the power and downstream energy team at Price Forbes in 2014.

Jones brings 28 years of experience to BMS and has been part of the power, nuclear and construction unit at Price Forbes since 2010.

Meanwhile, Green spent her career at JLT focusing on North American energy clients and has over 20 years’ experience.

Commenting on the appointments, BMS Group director Ian Gormley said: “Sustaining exceptional client focused services is at the heart of our culture, and, as we grow, we continue to attract the industry’s leading talent to our entrepreneurial team.”

“Lynsey, Kevin, Darren and Robin are well respected in their fields and their breadth of expertise compliments the knowledge within our growing energy division. We are a significant step closer to achieving our ambition of building the London market’s leading Energy team. I would like to offer them all a very warm welcome.”