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XL CEO: Catlin buyout will create a top 10 global reinsurer

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XL Group P.L.C.'s pending acquisition of Catlin Group Ltd. for about $4.3 billion will give the combined entity the size to operate profitably in a difficult reinsurance market, XL CEO Mike McGavick said Friday.

In an interview with Business Insurance, Mr. McGavick said the buyout, announced earlier in the day, will accomplish three goals.

It will add “immediate scale” in specialty insurance, he said. The combination will create a “larger and more efficient” global network, and he said it will create the eighth-largest property/casualty reinsurer in the world. The reinsurance sector is undergoing a “lot of structural change,” and size matters, the CEO said.

“We think that size is one of the ways we will be able to defend our profitable position in catastrophe reinsurance,” Mr. McGavick said. The combined operation will be the third-largest broker market catastrophe reinsurer and be marketed as XL Catlin, he said.

Noting how competitive the reinsurance marketplace has become, Mr. McGavick said “scale gives us a way to operate in this difficult environment.”

Dublin-based XL and Bermuda-based Catlin confirmed last month they were in acquisition talks, after the discussions leaked to the media. The deal was initially valued at slightly more than $3.9 billion. Mr. McGavick said the $4.3 billion price tag announced Friday reflected fluctuations in share price and currency. The transaction is expected to close by midyear.

In a statement announcing the acquisition, which requires regulatory approval, XL said the combined company will have $17 billion of total capital and about $10 billion of net premium based on the Dec. 31, 2013, audited financials of each company.

Catlin manages the largest Lloyd's of London syndicate, with a capacity of £1.43 billion ($2.19 billion) and would become even larger with the merger of XL's syndicate, with a capacity of £300 million ($460.0 million)

In the statement, XL said that Mr. McGavick will continue as CEO, and Stephen Catlin, CEO of Catlin Group, is expected to join the combined operation as executive deputy chairman.

Mr. McGavick said in the interview that having a blended management team will be one of the keys to the operation's success. He said that he and Mr. Catlin had worked on the potential deal for more than a year and half, and had discussed issues such as cultural compatibility.

“We believe we can retain the best of the best,” Mr. McGavick said. “There will some cost savings; there will be fewer jobs to go around. It's been our responsibility as good stewards and colleagues to be clear, to be quick, and to be fair, and we intend to be just that.”

In response to the announcement of the acquisition, Standard & Poor's Ratings Services affirmed its A+ financial strength rating on XL and its subsidiaries.

“The affirmation of our ratings on XL reflects our view that the consolidated group will maintain an extremely strong capital adequacy redundant at the 'AAA' after the deal closes,” Standard & Poor's credit analyst Taoufik Gharib said in a statement.