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Blackstone’s Ariel, Validus Said to End Talks After Quake

Validus Holdings Ltd. and Bermuda rival Ariel Reinsurance Co. ended merger talks this month after disasters in Japan roiled insurance markets, said three people with knowledge of the matter.

Validus had been close to an almost $1 billion stock-and-cash deal for Ariel, owned by private-equity firms including Blackstone Group LP, said the people, who spoke on condition of anonymity because the talks are private. Potential losses stemming from Japan’s earthquake meant that reaching a deal would take more time and effort than previously anticipated, contributing to a breakdown in talks, the people said.

While global markets have mostly recovered from the selloff in stocks that followed Japan’s magnitude-9 earthquake and tsunami on March 11, insurers are still gauging costs. Companies may face claims of as much as 2.5 trillion yen ($30 billion), catastrophe-modeling firm AIR Worldwide said last week.

“It will be quite some time before anybody can really with certainty state what the true loss to the worldwide reinsurance market is,” Validus Chief Financial Officer Jeff Consolino said today at a conference in New York hosted by JPMorgan Chase & Co. He said Validus’s reinsurance business is “underweight Japan.”

Validus rose 52 cents to $31.61 at 4:01 p.m. in New York Stock Exchange composite trading today. The shares have climbed 3.3 percent this year.

Class of 2005

A sale of Ariel would have represented another step in the consolidation of the so-called Class of 2005, a group of reinsurers founded by Wall Street banks and private-equity and hedge funds after Hurricanes Katrina, Rita and Wilma. Jeffrey Greenberg’s Aquiline Capital Partners LLC helped set up Validus that year, while Ariel was started with $1 billion from founders including Blackstone, TPG Capital, and Thomas H. Lee Partners.

Ariel’s owners paid themselves a $400 million cash dividend in 2010 and took out $260 million this year, according to financial statements on Ariel’s website. Ariel had book value, or assets minus liabilities, of $1.3 billion as of Dec. 31.

Ariel Chief Executive Officer Tom Hulst didn’t return a call seeking comment.

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