7 August 2013 Insurance

Lancashire to acquire Cathedral Capital

Lancashire Holdings has entered into conditional agreements to acquire Cathedral Capital, the privately owned Lloyd's insurer, from Alchemy Partners and Cathedral management for £266 million in cash.

Lancashire said it believes Lancashire's and Cathedral's existing businesses are a strong complementary fit and it expects the acquisition to bring “material benefits” to the enlarged Lancashire Group.

“The transaction represents a rare opportunity to acquire a high-quality Lloyd's business with a short-tail focus, strong business model fit and robust underwriting performance,” the company said.

“The enlarged group will have access to an enhanced insurance and reinsurance platform and will benefit from direct participation in Lloyd's, the world's leading specialist insurance market. The acquisition further provides Lancashire with flexibility to respond to the changing industry and market environment which increasingly requires multiple distribution capability.”

The price represents a multiple of 1.60x the net tangible assets of Cathedral as at March 31 2013. The acquisition will include loan notes issued by Cathedral's subsidiary, Cathedral Capital (Investments).

Lancashire will fund the deal through a combination of internally available cash resources and the net proceeds of the placing of up to 16,843,382 new common shares in the company, representing approximately 9.99% of the company's existing issued share capital with institutional investors.

“The deal will broaden our business line exposure, and strengthens and diversifies our core underwriting. In addition it will allow us to continue our track record of financial flexibility and efficient capital management,” said Richard Brindle, Lancashire's chief executive.

“We've been talking a lot this year about how important it is to remain relevant in such a rapidly changing marketplace. With Lancashire Insurance Company and Lancashire Insurance Company (UK) Limited operating nimbly in the London and Bermuda company markets, Kinesis developing our capital markets presence, and now Cathedral with an established and successful Lloyd's business, we have excellent distribution channels for all our classes and clients.”

JP Morgan Cazenove is acting as sole financial advisor and sponsor to Lancashire with respect to the acquisition. Kinmont and Willis Capital Markets & Advisory are advising Cathedral.

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