Catlin Says XL Group Made Takeover Bid for $3.9 BillionSarah Jones and Zachary Tracer
XL Group Plc, the insurer increasing its focus on commercial coverage, has approached Catlin Group Ltd. with a possible offer to buy the Lloyd’s of London company for about 2.5 billion pounds ($3.9 billion).
XL would pay 410 pence in cash and 0.130 XL share for each Catlin common share, the Bermuda-based target company said in a statement today. Based on XL’s closing price yesterday, the offer values each Catlin share at 699 pence apiece. The stock jumped 15 percent at 2:05 p.m. in London to 671 pence.
Chief Executive Officer Mike McGavick has been reshaping Dublin-based XL, exiting a life reinsurance business in June and striking a deal this week to sell a stake in a home insurer to Progressive Corp. XL is among traditional insurers seeking to retain market share as hedge funds and other investors start new companies or enter risk-transfer deals on property-catastrophe hazards.
XL and Catlin “believe that we will be far better positioned and stronger together,” McGavick said in a separate statement. “The combined entity would be a leader in the global specialty and property-cat markets and would make greater and more efficient use of both companies’ global networks.”
With the pursuit of Catlin, he joins other insurers that are seeking deals to expand property-casualty coverage for commercial clients on specialized risks for industries like aerospace, shipping and forestry. RenaissanceRe Holdings Ltd. agreed last month to buy Platinum Underwriters Holdings Ltd. for about $1.9 billion.
Catlin said in the statement that “discussions are currently ongoing” and there “can be no certainty” that talks will lead to any transaction.
The target company, founded by CEO Stephen Catlin in 1984 in London, employs almost 2,500 people in more than 25 countries and wrote more than $5.3 billion in gross premiums last year. The company also sells reinsurance, or backup coverage for primary carriers. Catlin has hired former XL executives including Fiona Luck whose roles at XL included special adviser to the CEO.
Ace Ltd. CEO Evan Greenberg said in October that there could be a “feeding frenzy” for mergers and acquisitions as commercial insurers and reinsurers struggle to find other paths for growth. Fitch Ratings has also said that Wall Street’s increasing appetite for insurance risks could encourage takeovers.
“The increased availability of alternative reinsurance could add to an M&A trend by providing further sources of capital to the market while potentially reducing growth opportunities for traditional reinsurers in direct competition with the alternative providers,” the ratings firm said in a statement in August.
XL fell 3.7 percent to $33.73 at 9:36 a.m. in New York. McGavick, who also provides reinsurance, has sought to distinguish his company from new sources of insurance capital.
“I’m not sure they do” understand all the risks of the business, McGavick said in a Bloomberg Television interview last month. Managers of hedge funds and pensions “are saying, ‘We kind of trust these models and we’re willing to come in and take a bit of the risk.’ Of course, if you’ve been in the business, you’re going, ‘You know, these models aren’t that good.’”