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Axis to buy London rival Novae for over $600 million

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Bermuda-based insurer and reinsurer Axis Capital Holdings Ltd. will buy Lloyd’s of London insurer Novae Group P.L.C. for $604 million, Axis announced late Wednesday.

The combined business will have more than $6 billion in gross written premium, Axis said in a statement. Novae reported £901 million ($1.17 billion) in gross written premium in 2016, a pre-tax profit of £23.7 million ($30.7 million) and a 107% combined ratio. According to an investor presentation, the offer represents about a 20% premium on its July 4 closing price.

Novae grew out of the Spreckley Villers Hunt & Co. Ltd. managing agency, which was established in 1986. It operates Lloyd’s syndicate 2007 and covers various property/casualty, marine, aviation and specialty risks.

Axis, which was formed in Bermuda in 2001 and has operations in North America, Europe, Singapore and Brazil, already operates Lloyd’s syndicate 1686. The combined entity will have London market-related gross written premium of about $2 billion.

“A key component of our growth strategy is to have leadership positions, relevance and scale in each of the specialty risk markets where we choose to compete,” said Albert Benchimol, president and CEO of Axis, in the statement. “The acquisition of Novae is a great opportunity to accelerate the breadth and depth of talent, lines of business, and leadership positions that we are developing in the London market for specialty risks.”

The deal will increase the insurance component of Axis' book, according to the investor presentation. Currently, Axis' business is 45% reinsurance and 55% insurance; after the deal is completed, its combined business will be 39% reinsurance and 61% insurance.

Several companies with insurance and reinsurance operations — including Berkshire Hathaway Inc. and Bermuda-based Everest Re Group Ltd. — have sought to increase their insurance business over the past several years as reinsurance prices have fallen.

The deal will also increase the Lloyd's component of Axis' business to 24% from 6%.

In a conference call with analysts on Thursday, Mr. Benchimol said: "We remain convinced that Lloyd's is the pre-eminent international market for specialty risks ... we really do not see that changing in a material way in the near term."

As part of the deal, which is expected to close in the fourth quarter, Novae CEO Matthew Fosh will join Axis as executive chair, Europe. Novae’s chief underwriting officer, Robert Forster, will have a senior underwriting management role on the leadership team of Axis’ international insurance division, which is led by CEO Mark Gregory, Axis said.

Novae has about 350 employees, mostly based in London. Axis expects to achieve annual cost savings of about $50 million, primarily from reduced corporate expenses and support functions, according to the investor presentation.

The cash deal comes about two years after Axis lost out to Italy’s Exor S.p.A. in a bidding war over PartnerRe Ltd.