RenRe acquisition of Platinum may signal trend in soft reinsurance market

While RenaissanceRe Holdings Ltd.'s $1.9 billion purchase of fellow Bermuda reinsurer Platinum Underwriters Holdings Ltd. will bear specific fruit for the buyer, the deal is being driven at least in part by overall soft market conditions coupled with an abundance of capital — and may portend further deals.

The deal, announced Monday, would see RenRe paying $76 in stock and cash per share of Platinum, a 24% premium to Platinum's closing price of $61.27 on Friday.

Platinum's shareholders will get a $10-per-share special dividend, and will be able to choose the rest in the form of $66 in cash or 0.6504 in RenaissanceRe shares or a combination of $35.96 in cash and 0.2960 RenaissanceRe stock.

RenRe has expressed interest in enlarging its casualty reinsurance business, and this is an ideal opportunity to do just that, according to analyst Brett Shirreffs, New York-based vice president with Keefe Bruyette & Woods Inc.

“This is clearly a sign that they are serious about these intentions, and it's clearly an effort to grow more rapidly in casualty reinsurance than they would have been able to build organically,” said Mr. Shirreffs.

Casualty reinsurance represents over half of Platinum's book of business, said Mr. Shirreffs, and the business has been extremely profitable, making it an ideal fit for RenRe's growth plans.

Overall market conditions, however, also played a role in the deal.

Softening rates and increased competition from abundant sources of alternative capital have “caused RenRe to be more interested in non-property catastrophe business,” said Mr. Shirreffs. Similarly, “Platinum has been forced to shrink as a result of market dynamics,” rendering it a likely takeover candidate, he said.

“The organic growth outlook looks soft,” said John L. Ward, CEO of Cincinnatus Partners L.L.C. in Loveland, Ohio, adding that the deal could be a harbinger of things to come.

“I think we're going to be seeing some announcements” about further deals, said Mr. Ward, possibly even before the year's end.

“The year-end does bring out a lot of deal announcements, so I would not be surprised to see more announcements before year-end, but generally I'm looking at this as maybe a six-to-18-month industry development,” he said.