Investor pressures RenRe to seek a buyer
TimesSquare Capital Management, an institutional asset management firm with a significant stake in RenaissanceRe Holdings is suggesting that the Bermuda-based reinsurer should explore a potential sale of the company.
“We remain steadfast in our belief that an immediate review of strategic alternatives, including an exploration of a potential sale of the company, is imperative,” the investor said in a Sept. 7, 2018 dated letter to the RenRe management board.
In the letter, TimesSquare Capital Management argued that a structural transformation of RenRe’s core property catastrophe reinsurance business, driven by the growing participation of alternative capital has had an adverse impact on the long-term risk-adjusted returns achievable in this business.
“The degree of pricing response following large loss events over the past decade has been dampened relative to history and the duration of pricing gains has been ephemeral,” the letter says.
The investor also suggested that the “premier position” that RenRe enjoys as a standalone reinsurer has not resulted in investors ascribing an improved valuation for the company, even as acquisitions of peer companies have been generally consummated at escalating valuation multiples over the past two years.
TimesSquare Capital Management referred to the XL Group, which is being acquired by AXA for $15.3 billion, reflecting a price to tangible book value of 1.96x. Or Validus Holdings, which has been acquired by American International Group (AIG) for $5.6 billion, reflecting a price to tangible book value of 1.77x.
As the industry environment evolves, “we have diminished conviction that RenRe’s share price will appropriately reflect intrinsic value,” TimesSquare Capital Management noted, concluding that to realize RenRe’s intrinsic value it should review its strategic alternatives, including a possible sale of the company.
“We believe there are a number of potential acquirers that would covet RenRe’s dominant and unique position in third party capital management, as well as the Company’s proven track record of superior underwriting, risk management and tangible book value per share growth,” the investor said in the letter. “Our opinion is that an active competitive sale process for the Company should be launched, which would likely yield a significant control premium over the current share price.
“To this end, we are requesting that the board immediately commences a review of strategic alternatives, including an exploration of the sale of the Company, in order to maximize value for shareholders,” the letter signed by partner and director Seth Bienstock as well as senior founding partner Ian Anthony Rosenthal.
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