Validus’s Longhorn purchase a ‘shrewd move’

Validus’s acquisition of small Bermuda crop reinsurer Longhorn Re has been described as a shrewd move by analysts who have welcomed the diversification it brings the bigger company. The crop reinsurance market also looks set to benefit from rate hikes after heavy losses in recent years.

“This particular deal offers Validus the benefits of diversification, because the risks that it has assumed are very different to those which it usually faces, such as hurricanes and earthquakes,” said Meyer Shields, analyst at investment bank Stifel Nicolaus.

Although crop insurers have had a tough year, losses have been nowhere near as bad as in catastrophe insurance, which experienced huge losses in 2011. While crop reinsurers do not benefit from government subsidies, as primary crop insurers do, it still represents good business, said Meyer.

Speaking at Validus’s fourth quarter 2012 conference call on February 1, Ed Noonan, chairman and CEO of Validus Holding, said that the acquisition gives Validus access to a portfolio that it understands and likes, while also adding depth to the firm’s crop team.

“Longhorn is a very, very small transaction for us, but brings us some other strategic benefit that we will be in a position to discuss after the acquisition is complete,” he said.

“Crop fits as part of our portfolio, and we see this as an attractive time to expand in light of last year's loss activity. We grew our crop book by $55 million at January 1. This is a class that we see as having good long-term global growth potential, and we have been patient in waiting for the right opportunity. We think the combination of market improvements and the addition of Longhorn provides a great foundation for this class.”