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Ironshore welcomes bid from Fosun International

Posted On: May. 10, 2015 12:00 AM CST

Fosun International Ltd.'s acquisition of the rest of specialty insurer Ironshore Inc. would give Ironshore access to capital through a publicly traded parent that wants to expand its insurance operations.

Under the deal announced earlier this month, Shanghai-based Fosun offered $1.8 billion for the remaining 80% of Hamilton, Bermuda-based Ironshore that it didn’t own. Fosun bought 20% of Ironshore last August for $464 million.

At year-end, Ironshore had total assets of $6.7 billion.

“This is a great day,” Mitch Blaser, Ironshore’s chief operating officer, said in an interview. “It gives us a strategic owner with long-term, permanent access to capital.”

“They represent an open door to areas in Asia and opportunities that would not normally be available to a company like ours,” he said.

Chinese billionaire Guo Guangchang, who controls Fosun and is the investment firm’s chairman, said Ironshore has “outstanding brand value,” a “widely recognized management team” and extensive insurance industry experience.

“The group has been endeavoring determined efforts in establishing insurance as its core business and developing insurance as one of the key growth engines of the group,” Mr. Guo said in an email. “We believe the acquisition will bring synergies for both parties in prevention of currency risks, expansion of assets allocation and cooperation in reinsurance business.”

The deal is an example of rising foreign interest in U.S. insurers, analysts say.

“I definitely see continued foreign investment interest in the U.S. insurance market” due to opportunities in the commercial and personal lines markets, said Howard Mills, New York-based global insurance regulatory leader for Deloitte Services L.L.P.

“Anywhere you see insurers of strength, they will naturally look toward the U.S. market,” said Mr. Mills, adding that he has seen interest from Asia, South America and Europe.

“As far as interest in the U.S., it’s all around the globe, you can see it,” said John L. Ward, CEO of Cincinnatus Partners L.L.C. in Loveland, Ohio. “I anticipate that international capital will be attracted to acquisitions in the U.S., and I see that trend continuing in the short term” of 12 to 18 months.

Fosun, founded in 1992, has more than $50 billion in assets, more than one-third of which are invested in insurers that include Ironshore, Hong Kong-based Peak Reinsurance and Southfield, Michigan-based Meadowbrook Group Inc., which Fosun proposed buying for $433 million in December.

“Fosun is acquisitive by nature and looking to build their insurance capabilities,” said Ironshore’s Mr. Blaser. “If we find quality companies that fit with our model and we want to acquire them, we’ll have the support of Fosun to do so. That’s what they’re actually encouraging.”

Others also see Fosun being drawn to insurance.

“Based upon some of the disclosures they have made, it seems they certainly have the intent to expand their insurance platform,” said Siddhartha Ghosh, senior credit analyst with Standard & Poor’s Corp., in New York.

“This is not something we were surprised to see given Fosun’s alleged interest in Montpelier (Re Holdings Ltd.) and the delay in the (Ironshore) IPO after the 20% purchase” of Ironshore by Fosun, said Brian Schneider, senior director of insurance at Fitch Ratings Inc. in Chicago.

“We generally consider public ownership to be better than private because it typically offers more flexibility in terms of access to capital,” Mr. Schneider said.

Fosun also offers geographical diversity to Ironshore, which was founded in 2006 following massive hurricane losses in 2005 and the subprime-mortgage meltdown.

“Ironshore will probably benefit from being part of a bigger parent, a single parent, with a footprint in Asia; however, it will take some time,” Mr. Ghosh said.

Like Fosun’s stated intent with Meadowbrook, whose shareholders in late April approved the deal that is expected to close in the second half of this year, Ironshore likely will continue operating as a separate entity.

“Fosun has mentioned very clearly in their publicly disclosed statements that they would be operating Ironshore on a stand-alone basis,” Mr. Ghosh said.

“The management team led by CEO Kevin Kelley has been recognized by the industry as a first-class management and underwriting team,” Fosun’s Mr. Guo said.

While Fosun is expected to allow Ironshore to run its insurance business, the new parent may wish to be involved in the insurer’s investment strategy, much like Berkshire Hathaway Inc., “following the model of looking to generate successful insurance businesses that would allow Fosun to focus on the investment side,” Ironshore’s Mr. Blaser said.

“They call it the two wheels of the bicycle,” he said. “The front wheel they say is the insurance business and the back wheel is their investment opportunity.”

The deal to buy Ironshore is subject to regulatory approval, and both sides can call it off if it is not completed by March 31, 2016.