Chasing A ShakeoutKelley Holland
Guess who's chasing after insurance companies these days? The unlikely answer: banks. Especially noteworthy is a new venture called Insurance Partners, a joint venture involving Chase Manhattan Corp.; Keystone Inc., formerly the Robert M. Bass Group; and Centre Reinsurance Holdings Ltd., a unit of Zurich Insurance Co., the Zurich-based concern. Insurance Partners, which will have at least $400 million in assets and is slated to close within a month, will invest in insurers with problems or those that it believes are undervalued, say sources close to the deal. J.P. Morgan & Co. is also in the game. Along with two partners, Morgan is raising a $500 million fund to invest in insurance startups.
Among the goals of Insurance Partners will be to capitalize on the accelerating insurance-industry consolidation by fixing up companies, then selling out at a profit. Since its investments, unlike the Morgan fund, will be leveraged, Insurance Partners will be able to buy or invest in companies with assets of more than $1 billion. The three founding partners are investing a total of $200 million in Insurance Partners. About 80% of the rest will come from institutional investors including other Bass investment vehicles and individual investors, a market source says. Chase declined comment on the fund, as did Keystone and Centre Re.
BREAKFAST MEETING. Banks and insurance companies have long been separated by regulations. Most U.S. banks are forbidden to get involved in managing an insurance company or to acquire more than 24.9% of an insurer. Chase will leave the day-to-day management of the fund to the other founding partners and its investments will be less than the maximum allowed, but the bank could provide senior debt financing to supplement Insurance Partners' equity investments.
Chase had been mulling a fund to invest in insurance companies for more than a year before Insurance Partners came together, and Centre Re and Keystone had also been considering such a venture, according to a market source. But it wasn't until a Chase-sponsored conference on insurance held last March that the three got together. Over breakfast, officials from the three companies discussed their ideas and decided to try and launch a fund together. They inked a deal a month later and began soliciting investors last fall.
The partners made their first bid last summer. They tried to buy Prudential Reinsurance Co., a subsidiary of Prudential Insurance Co. of America, when it came up for sale. But Prudential took the unit off the block because bids did not meet its asking price of $1.2 billion.
Insurance Partners is entering a crowded field. Conning & Co., a Hartford investment firm, is raising $100 million to take positions in mid-size insurers. Conseco Inc., an insurance holding company, is raising $615 million for life-insurance deals. These ventures may not become bonanzas, but as the banks see things, it beats making loans.