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RenaissanceRe's purchase of Platinum may signal start of buyout trend

RenRe's Platinum buy seen as complementary

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RenaissanceRe's purchase of Platinum may signal start of buyout trend

RenaissanceRe Holdings Ltd.'s $1.9 billion agreement to merge with Platinum Underwriters Holdings Ltd. will boost RenaissnanceRe's casualty book and may signal more deals among reinsurers with complementary offerings.

Under the definitive merger agreement the Bermuda-based companies announced late last month, RenaissanceRe said the cash-and-stock deal will accelerate its strategy of expanding its casualty and specialty business and result in a combined company with $2 billion in pro forma written premiums.

Analysts say they expect more Bermuda reinsurers to merge for strategic reasons.

Platinum's operations will carry the RenaissanceRe brand, the companies said in a statement. Platinum had 124 employees, according to its third-quarter earnings statement.

In addition, Platinum President and CEO Michael Price will step down and not join the combined entity, a RenaissanceRe spokes-woman confirmed.

While analysts cited the complementary products offered by the reinsurers as the major driver of the deal rather than achieving economies of scale, RenaissanceRe did say it expects to achieve $30 million in “run-rate annual cost savings” and “meaningful capital efficiencies” in the combined entity.

“There's more of a strategic aspect in this case,” said analyst Brett Shirreffs, New York-based vice president at Keefe Bruyette & Woods Inc. “RenaissanceRe has discussed interest in growing their casualty reinsurance book” of business.

“What Platinum does for RenaissanceRe is accelerate the specialties strategy that RenRe already had in place,” said Jason Porter, director and credit analyst at Standard & Poor's Corp. in New York. “This transaction ... brings that strategy ahead much faster than they could do it organically.”

“I think (Platinum has) done a good job in the casualty space,” said Brian Schneider, Chicago-based senior director of insurance at Fitch Ratings Inc.

“This transaction will certainly increase the likelihood that you could see additional mergers and acquisitions,” Mr. Schneider said. Acquisition targets are more likely to be smaller reinsurers with less than $3 billion in capital because they are more easily integrated, he said.

“These two companies are a good fit and I do think this could be the start of something bigger” in the next six to 18 months, said John L. Ward, CEO of Cincinnatus Partners L.L.C. in Loveland, Ohio.

“We've had a view for the last three years that we expect to see more consolidation not just in the Bermuda market but in all the entire reinsurance market,” said Bryon Ehrhart, CEO of Aon Benfield Americas in Chicago. “The dynamics of the reinsurance market that would call on management and boards to consolidate are present and have been for some time.”

Mr. Shirreffs was more cautious.

“I think going forward there will continue to be strategically driven deals, but it's not clear yet if that will become more prevalent in the near term,” Mr. Shirreffs said. “There aren't really any distressed sellers out there right now and that will be one thing that prevents a wave.”

The deal, which the companies said is expected to close in the first half of 2015, is subject to regulatory and Platinum shareholder approvals, the reinsurers said.

Observers agreed that while a rival bidder emerging is possible, it is less likely given the friendly nature of the deal and the generous premium being offered: The $1.9 billion purchase is equivalent to $76 per Platinum share, a 24% premium over the stock's Nov. 21 closing price.

A rival bidder is “always possible” said Fitch's Mr. Schneider. However, “it seems like the fit with RenRe and Platinum is probably better than it would be with other buyers and “seems large enough to discourage other investors from coming onboard.”

“The offer valuation is slightly above peer multiples, but I think the offer price does leave room for a rival bidder to emerge without being considered an excessive price,” said Mr. Shirreffs.

“The fact that this is a friendly transaction reduces the odds or likelihood of another bidder emerging, but it doesn't eliminate the possibility,” said Mr. Ward.

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