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Validus Targets Growth in Asia After Flagstone Purchase

Validus Holdings Ltd. (VR), the reinsurer that agreed yesterday to buy Flagstone Reinsurance Holdings SA (FSR), is looking to expand beyond the U.S., its largest market, into Asia and Australia.

Pricing for the coverage that backstops insurers against the largest risks has increased in nations including Japan after the 2011 earthquake and tsunami, creating opportunities for Validus, Chairman and Chief Executive Officer Ed Noonan said.

“As a result of the losses last year in Asia, which we largely avoided, markets like Japan and Australia are suddenly paying higher prices,” Noonan, 54, said yesterday in a phone interview from Bermuda, where Validus is based. “We certainly see attractive opportunities there.”

Validus agreed to buy Flagstone for $623.2 million in cash and stock, valuing Flagstone at 19 percent more than the Aug. 29 closing price. Validus said its maximum risk from a Japan typhoon would jump by about 47 percent to $355 million after acquiring Flagstone, assuming a storm so severe that it strikes once every 250 years, according to a presentation posted online.

Risk from an earthquake of similar magnitude in Japan would rise 37 percent to $282.3 million. The largest risk would remain U.S. hurricanes at $1.24 billion, an increase of $148.7 million with the addition of Luxembourg-based Flagstone.

“We’ve seen rates move up this year in the U.S. market and that continues to be very attractive,” Noonan said.

About 41 percent of Validus’s policy sales came from the U.S. in the quarter ended June 30, compared with 5.5 percent from Japan, a company filing showed. Marine and aerospace coverage, which can span regions, accounted for 26 percent.

Asia Business

Billionaire Warren Buffett said in May that the reinsurance unit of his Berkshire Hathaway Inc. is doing “far more” business in Asia. Swiss insurer Ace Ltd. is seeking to expand in Japan after the country’s insurers took on too much risk before the earthquake and tsunami in March 2011, CEO Evan Greenberg said in April.

Greenberg’s brother, Jeff Greenberg, is on the board of Validus. Their father, Maurice “Hank” Greenberg, built American International Group Inc. into the world’s biggest insurer before he was forced out in 2005.

Reinsurance rates rose as much as 60 percent for earthquake coverage in Japan, and less for other risks, after the 2011 disaster, Swiss Re Ltd. said in June of that year. In the U.S., property reinsurance prices have risen 6.5 percent this year from 2011 as primary insurers changed how they managed risk after last year’s losses, Guy Carpenter & Co. said last month.

Flagstone Transaction

In the deal announced yesterday, Flagstone investors will get 0.1935 share of Validus and $2 in cash for every one of their shares, for an aggregate equity value of $623.2 million. The purchase may be complete in the fourth quarter, the companies said.

“We never mind rolling up our sleeves and fighting for something that we think is good for Validus,” Noonan said on a conference call with analysts yesterday. “We don’t anticipate it, but we never shy away from it.”

Noonan said that Isaac, the hurricane that struck Louisiana on Aug. 28 and caused flooding in New Orleans, won’t generate a meaningful amount of claims.

“This is not a big loss to the insurance industry and it won’t be a significant loss to the reinsurance industry,” he said in the interview.

To contact the reporters on this story: Zachary Tracer in New York at ztracer1@bloomberg.net;

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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