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24 October 2022 Insurance

TransRe-Buffett deal signifies belief in reinsurance amid market turmoil

It is a case of “business as usual” at TransRe following the reinsurer’s acquisition by Warren Buffett’s Berkshire Hathaway, as the company says it will double down on deep, long-term partnerships with its clients as they navigate a number of complex challenges together, moving towards the year-end renewal.

That is the message from Rudiger Skaletz (pictured), chief business development officer, Europe, TransRe, speaking to Intelligent Insurer. He was commenting in the context of Berkshire Hathaway securing regulatory approvals for its acquisition of Alleghany Corporation, TransRe’s parent as part of a $11.6 billion deal that closed on October 19.

“Berkshire has bought us because we are a solid, well-functioning company with a good reputation,” Skaletz said. “It is a very positive development for us. Our ratings have been put on positive watch and it gives us stability and our clients security in a very insecure market, especially on long tail lines.” (We spoke to Skaletz just before the deal closed, and prior to confirmation of the ratings upgrades.)

This ties in with the company’s long-standing values, he says, which are more important than ever in this market. The challenges of inflation, rising cat losses, and an increased demand for reinsurance without additional capacity mean that cedants will need to lean on their long-standing partnerships with reinsurers more than ever.

“Long-standing, good relationships with clients are key. We want partnerships where we can support clients through good times as well as difficult times. We want to work together with clients, we want to support them. That is what our clients want and expect from us,” he said.

In March this year, Buffett’s railways-to-reinsurance group reached an agreement to acquire all of Alleghany’s outstanding shares for $848.02 in cash, a multiple of 1.26x Alleghany’s book value as of December 31, 2021, in an $11.6 billion deal. It was unanimously approved by both boards of directors.

In April, Alleghany confirmed that the “go-shop” period under the merger agreement with Berkshire had ended.

Skaletz believes that Alleghany, and thus TransRe, will continue to operate as an independent subsidiary of Berkshire Hathaway.

He notes that, while the deal is clearly significant for TransRe, it has wider implications for the reinsurance market. At a time of great uncertainty, when some reinsurers are pulling back capacity, third party capital is selective and there are no startups on the horizon, despite soaring rates, the deal indicates a commitment and confidence in the market by Buffett.

“It shows that Warren Buffett still believes in reinsurance, which is a good sign,” Skaletz said. “It’s a very good indication for the market. He realises the market is changing. The dynamics are changing; the overall economics are changing. It is very reassuring to see an investor like Buffett buying into reinsurance because he believes the philosophy of reinsurance has a future. That is reassuring for the whole market and, obviously, for us specifically.”

He adds that, while there will be no direct impact on capacity, the deal has other positive implications. “There is no new capacity per se, but we do not plan to withdraw capacity. In that sense, it’s neutral but in other ways, such as with the rating, it is a very positive development. Our clients have noted that we are on positive outlook, and they appreciate the stability the deal brings. They know we will continue to be there to pay claims, which is very important,” Skaletz said.

“We are in a very good place with Berkshire. Our strategy, risk appetite, services and expertise all remain the same We will remain very accessible. We have a very flat management structure, which our clients appreciate. Right now, everything is business as usual.

“We are an underwriting company, and our underwriters have the power to make decisions. That’s a big differentiator for our clients, which will not change,” he said.

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