18 December 2014 Insurance

Industry pressures mean analysts welcome Catlin-XL tie

Immediate reaction to the revelation yesterday that negotiations are ongoing that could see XL Group acquire Catlin has been broadly positive with most analysts acknowledging that bigger is better in what is an increasingly competitive environment for reinsurers and global insurers.

Catlin and XL confirmed yesterday that they are in talks thanks to a £2.5 billion proposal from XL. They stressed that a combination of the two firms would create “a leading player in property and casualty insurance and reinsurance and expand opportunities for the combined underwriting team in the global marketplace”.

Under the indicative terms of the Possible Offer, XL would acquire 100 percent of Catlin for consideration of 410 pence in cash and 0.130 shares of XL for each Catlin common share. On the basis of the closing price of an XL share on 16 December of $35.01, an exchange rate of $1.573:£1 and a fully diluted share count of 386 million shares, the offer values each Catlin share at 699 pence.

Shares in Catlin jumped by as much as 15 percent immediately following the news.

Analysts have commented that the deal is largely being driven by the competitive pressures in the reinsurance sector as so-called alternative capital enters the industry.

Ben Cohen an analyst at Canaccord Genuity noted the overlap between the two companies and the need for greater scale in reinsurance. He also said that the price looked fair.

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