XL-Catlin form top tier reinsurer in $4.1bn deal

XL Group has finalised a deal that sees it buy Catlin for $4.1 billion. The new entity, to be known as XL Catlin, will boast some $10 billion of total net premiums, more than $3 billion of net reinsurance premiums and make it one of the ten biggest reinsurance groups globally.

Mike McGavick, the chief executive of XL Group and the combined entity, said the bigger size of the combined entities will address meaningful structural changes that are currently shaping the P&C sector.

The business will also be a substantial buyer of reinsurance with approximately $2.8 billion of ceded reinsurance giving it increased purchasing power in the market.

“We are delighted to announce this compelling combination which positions us strongly to provide more – and even better – answers for the world’s most complex risks while enhancing our opportunities to create value for shareholders and better serve clients and brokers,” said McGavick.

“We believe the transaction will accelerate each company’s strategy, and address the meaningful structural changes we see shaping the P&C sector. Specifically, the combination will add immediate scale in specialty insurance, it will create a more efficient and more capable global network by bringing our two infrastructures together, and it creates a top 10 reinsurer with expanded alternative capital capabilities.”

Following the completion of the transaction, which is expected to close mid-2015, the name of the parent company of the combined group will remain XL Group. The trading entity, however, will be known as XL Catlin.

McGavick will continue as CEO and it is expected that Stephen Catlin will join the combined company as executive deputy chairman upon the closing of the transaction.

It is also expected that Catlin will serve on the board of directors. Peter Porrino will continue as chief financial officer. An additional Catlin director is also expected to join the XL board of directors.

Greg Hendrick, currently XL’s chief executive insurance operations, will have the role of chief executive of reinsurance, assuming responsibility for the combined reinsurance business and leading all alternative capital strategies. Until the transaction closes, John Welch, currently chief executive of XL’s North America reinsurance operations, will lead reinsurance operations at XL, given Jamie Veghte’ s recent retirement.

Paul Brand, Catlin’s chief underwriting officer, will have the position of chair insurance leadership team and chief underwriting officer insurance and will have responsibility for capital allocation and purchasing outward reinsurance for the group. Additionally, Kelly Lyles, currently XL’s head of professional insurance will assume the position of deputy chair insurance leadership team and chief regional officer insurance. Brand and Lyles will both report to McGavick and together will lead all aspects of insurance for the combined company.

McGavick added: “This is an extraordinary opportunity to bring together two innovators with roots in disciplined underwriting, industry leadership and business vision, and strong cultural alignment. I am especially pleased that Stephen Catlin will continue on with the combined company and, on closing of the acquisition, is expected to serve on our Board.

“We will benefit enormously from Stephen’s input in all strategic decisions and through our ability to leverage his vast market network as we implement the strategy of the new combined company. With the combination of our talented teams, we expect to maintain strong financial fundamentals while generating attractive economics and long-term value for shareholders including double-digit EPS and meaningful ROE accretion.”

Catlin CEO Stephen Catlin said: “XL is a compelling partner for the Catlin business. Both businesses have been built on underwriting excellence and benefit from strong cultural compatibility. Together, the combined entity will be a market leading global specialty and property catastrophe insurer which will be far better positioned to respond to the changing dynamics that are impacting the broader insurance and reinsurance markets.

"We expect the enlarged business to benefit from increased diversification, significant further economies of scale, strengthened franchises in each of its markets and an improved standing with intermediaries. As a result, XL Catlin will be better equipped to serve its clients across a range of distribution channels and geographies with an enhanced suite of capabilities and products.”

According to a statement from XL, the new venture will offer a broader product offering and an expanded global network, particularly given an enlarged Lloyd’s platform with Catlin having a leading Lloyd’s presence.

It will also produce a top tier re/insurer in many of the specialty lines in which XL has recently invested including political risk and crisis management and will add to leading positions in aerospace, fine art & specie, and will have a best-in class aviation, marine and energy platform.

The transaction is expected to create an attractive return profile with earnings per share and return on equity accretion in 2016, the first full year of combined operation, and double-digit earnings per share accretion in 2017 upon full phase-in of expected synergies.

XL expects to issue approximately $1.8 billion of new XL shares in connection with the acquisition.