Endurance To Acquire Montpelier Re Holdings

March 31, 2015

The mergers in Bermuda’s re/insurance industry continue, with Endurance Specialty Holdings Ltd and Montpelier Re Holdings Ltd today [Mar 31] announcing that they have entered into a definitive merger agreement in which Endurance will acquire Montpelier.

Endurance will acquire Montpelier for consideration of 0.472 shares of Endurance and $9.89 in cash for each Montpelier common share, which represents $40.24 per Montpelier common share, or $1.83 billion in aggregate, based on Endurance’s closing price on March 30, 2015.

John R. Charman, Endurance’s Chairman and Chief Executive Officer, said, “Endurance’s strategic acquisition of Montpelier represents a compelling value creation opportunity for Endurance’s shareholders, with accretion to earnings per share and return on equity.

“As a result of the transaction, we expect to achieve meaningful transaction synergies through cost savings and greater capital efficiencies. Importantly, the acquisition materially increases our breadth of distribution with the addition of a good-sized and scalable Lloyd’s platform and an attractive property catastrophe business that complements our existing reinsurance portfolio.

“The acquisition also provides Endurance with a natural introduction to the business of managing insurance and reinsurance investment products for third-party capital investors. Montpelier’s historic high quality portfolio reflects a disciplined approach to underwriting that is consistent with Endurance’s strong risk management and underwriting culture.”

Under the terms of the agreement, the aggregate consideration for the transaction will consist of $450 million in cash and approximately 21.5 million Endurance ordinary shares, which are valued at approximately $1.4 billion based on Endurance’s closing price on March 30, 2015.

The cash portion of the consideration will be funded through a pre-closing dividend paid by Montpelier to its common shareholders. Following completion of the transaction, Montpelier’s existing shareholders will own approximately 32% of Endurance’s outstanding ordinary shares.

The acquisition price of $40.24 per Montpelier common share, based on Endurance’s closing price on March 30, 2015, represents a 19% premium to Montpelier’s unaffected closing price per common share as of the close of business on December 10, 2014. The acquisition price also represents a multiple of 1.21x Montpelier’s fully converted book value per common share as of December 31, 2014.

Christopher Harris, Montpelier’s President and Chief Executive Officer, said, “This transaction with Endurance provides significant value for Montpelier shareholders through up-front cash and an equity interest in a combined Endurance with enhanced scale, greater market presence and substantial product and geographic diversity.

“The combination of our balance sheets, our diverse underwriting platforms and high-quality books of business is a compelling opportunity for our shareholders, customers and distribution partners.”

For the 12 months ended December 31, 2014, the two companies had pro forma gross premiums written of $3.6 billion. Endurance common shareholders’ equity will increase from $2.8 billion to $4.1 billion, total capital will increase from $3.7 billion to $5.5 billion, and total cash and invested assets will increase from $6.7 billion to $9.3 billion on a pro-forma basis.

Endurance expects to achieve more than $60 million of annual run-rate cost savings and to realize meaningful capital efficiencies from the acquisition. The transaction is expected to be immediately accretive to earnings per share and return on equity, excluding non-recurring integration and transaction costs.

Endurance’s Board of Directors will be expanded at closing to include three of Montpelier’s current directors. Endurance’s senior management team will lead the combined company from its Bermuda headquarters.

The agreement has been unanimously approved by both companies’ Boards of Directors. The transaction is expected to be completed in the third quarter of 2015 and is subject to the approval of both companies’ shareholders, regulatory approvals and the satisfaction of customary closing conditions.

Funds affiliated with Charlesbank Capital Partners have agreed to vote their Montpelier common share stake in favor of the proposed transaction.

Endurance’s financial advisors in connection with the transaction are Morgan Stanley & Co. LLC and Jefferies LLC, and its legal counsel is Skadden, Arps, Slate, Meagher & Flom LLP. Montpelier’s financial advisor in connection with the transaction is Credit Suisse Securities (USA) LLC, and its legal counsel is Cravath, Swaine & Moore LLP.

This continues the ‘merger mania’ with Bermuda re/insurers, following after the deals between XL and Catlin [link], RenaissanceRe and Platinum Re [link] and Axis and PartnerRe [link].

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Comments (41)

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  1. Jeremy Deacon says:

    More M&A, inevitable job losses ….. have spoken to people who believe between 200/300 jobs will be lost as a result of M&A this year in Bermuda: each of those will be on a six figure salary …

    • Regina says:

      Yea but we want to get rid of all those pesky “forners” takin’ our jobs, right? Isn’t that what we are supposed to march for and protest for? Good riddance, right??? And take your 6 figure salaries with you!?

      Yes, that’s sarcasm. Get real Bermuda! We need people like this here for our survival. You’re getting your wish. They are leaving. Now what do all of you brainiacs propose we do? Have a march? What’s the plan for when we are all alone out here in the Atlantic clinging to this rock with no one to rent our houses or buy the few produce items we grow?? Suggestions? I’m waiting……

      • Coffee says:

        I suggest you do your part and do it well !

      • Danny says:

        Survival–really?

        • Paz says:

          Fine, Bermuda will survive.

          But it won’t be like it once was for a long, long time. Tourism won’t do it. Building international business to what it was 10 years ago extremely difficult and unlikely to be attained. So Bermuda will survive but the standard of living of its people will decline. Combine the international business situation with the disastrous financial position we are in and the decline will likely continue, albeit slowly, for some time. And most won’t understand why.

          Bermuda needs more middle aged, highly educated people. Yes, expats. Money and jobs will follow.

      • Jonah says:

        Reggie, baby, are the people of Bermuda the architects of these corporate raids , aka mergers?

        How in the world could the blame be placed on the backs of those you want to get real?

    • JB says:

      True – this is very inevitable this year that more of the same will occur.

      The re/insurance market at the moment is very soft which means that not as much money is being made. Therefore there are two possible scenarios:

      1. Companies lay off staff to cut costs
      2. Companies buy other companies because they are worth less, and lay off staff

      Either way, job losses are inevitable. This isn’t a PLP/OBA thing, this is a global economy thing. A big insurance loss year is required to push up premiums and improve the market again (E.g. 9/11 caused a lot of insurance companies and jobs to be created)

    • Luis Suarez says:

      John Charman, working for the good of Bermuda.

      Oh sorry, for the good of John Charman.

      Sleep well John.

  2. Good example of how the average Bermudian needs to work together just like when our forefathers helped each other build their houses when the Banks refused them loans.

    • Jeremy Deacon says:

      This is going to sound critical … but I hear over and over this call for Bermudians to work together etc but I never/rarely hear any ideas on what people should work together on to create more jobs and a more stable economy.

      • Luis Suarez says:

        Well that’s just it isn’t it Jeremy. A whole generation who have grown with a sense of entitlement. Get busy Bermudians, average isn’t going to cut it. Get applying for those bar jobs, cleaning jobs, gardening jobs. Reinsurance just closed unless you are damn good.

    • hmmm says:

      What have you done to work together?

  3. Back to Basics says:

    No doubt qualified Bermudians in Insurance/Accouting, etc will lose jobs while their peers on immigration contract at Endurance will keep theirs. Let’s see how our Immigration Department treat those contracts when they expire. The real winners here are the executive level who will receive a sizable payout.

    • Franklin Jr says:

      “in Insurance”

      so like… all of them?

    • colibm says:

      Was thinking the same thing – there’s a lot of Bermudian talent at the mid & upper level in the Reinsurance industry.

      We shall see.

    • Jo Blo says:

      Thats not true. Job losses will be across the board. Has nothing to do with Bermudian vs permit holders.

    • Billy Mays says:

      Do you have any clue how much cheaper and easier it is to hire Bermudians than expats? Business is about getting the work done as well and as cheaply as possible. More expensive employees are far far more exposed to downsizing than less expensive employees.
      Where there is a duplication in roles, someone will be let go; most likely, the more expensive employee, not the less expensive.

      • Paz says:

        Reinsurance is a business with a lot of capital. Expenses, while important, do not drive that many decisions. Technical abilities, market knowledge, risk management, communication skills, etc. are paramount. The merged companies will keep the best employees regardless of their pay level. They might just keep fewer of them.

        Companies will do their best to keep Bermudians but they will not be unduly protected.

    • Build a Better Bermuda says:

      Nationality is less likely to be of consideration, it will be a matter of redundancies and, as is more important in the private sector, job performance in those areas facing redundancies. Frankly, it’s cheaper to keep the Bermudians so long as they are performers.

  4. Jeremy Deacon says:

    I wonder who is next in line? There are two key issues in Bermuda that are going largely ignored: the mergers and acquisitions within the re/insurance sector the cost of health care.

    • Villager says:

      Cost of Healthcare is a global issue, I expect Bermuda to do more in house, and less expensive overseas trips. Also get used to bigger co-pays.

      The good news on M&A is that most Bermuda heavy employers have either merged or acquired. It’s down to valuations really. AWAC could be a target as price to book is around 1.

  5. Coffee says:

    Scaremongering , this M&A will not result in any job losses at all . On the contrary , the business will mushroom and expand , filling commercial and residential rental space .
    With the progressive immigration policies of the Current government we shall see an exponential increase of foreign intellectual capital to encourage many ,many more M&A ‘s . People have noticed that since the change of government in Bermuda , M&A’s seem to be trending upwards creating a vigorous market for employment of Bermudians .

    • Real Talk (original) says:

      I hope to God this ^ was an attempt at sarcasm.

    • Regina says:

      Tell that to all of the people who lost their jobs in the fist 3 mergers. Lots and lots of houses for rent and lots of people buying one-way airfares. But you go ahead and think what you will. #realityhurts

    • Jo Blo says:

      You are delusional my friend. This single post tells me you do not have a credible perspective on things. Not being rude btw.

      • Coffee says:

        This single post indicates that like M.Bloomberg stated in 2012/2013 and I quote, Since the change of government , the difference in Bermuda is like night and day ! Are you still rubbing your eyes ? Is it to bright for you ? Is Bermuda finally basking in the sunshine of financial success ? Was Bloomberg speaking from emotion or fact ? Does International Business really care who governs Bermuda as long as their profits are secured ? Did the PLP diminish their profits ? Did profits increase when the OBA took over ? Is there tangible and empirical proofs that the OBA has in anyway improved the financial lot of any of the alphabet group members ? How many more M&A ‘s until Hamilton has shrunk to the size of St.Geoges , all under the caring eye of the OBA ? I suggest that you get your sp80 sunscreen on cause it’s going to get hot in just a little while !

        • Villager says:

          Coffee, you clearly have no idea pal. The whole point of M&A is economies of scale. Once you had two
          HR managers, now you have one doing the job of two.

          The govt are doing a decent job, but this isn’t about politics, it’s about a shocking RI market, something they have no control over.

        • Ian says:

          Your views have no basis in reality. But I suppose if Bloomberg says everything is fine then we’re good right??! Lol. Never mind his interests locally are aligned with the UBP/ OBA agenda…

          • Jus' Wonderin' says:

            Well maybe if it weren’t for people like you he’d vote for the PLP/UPB. Besides anyone in the PLP/UBP with a successful business resume?

        • Build a Better Bermuda says:

          Actually, Premier Cox’s snap increase on payroll of 2% did cut into their profits, their immigration policies mad it increasingly difficult to head hunt for the top talent in their fields that could have provided better profitability through performance and the PLP government’s failure to ake our market competitive in the international stage, meant that companies redo icicles elsewhere to improve the profitability.
          I will concede, that had the PLP been re-elected 2 years ago, there probably would have been fewer mergers happening right now, but that would because of the high likelihood of there being less companies domicile do here.

  6. Jo Blo says:

    Will be interesting to see if this latest dose of reality will help people realize that the things which really drive the ups and downs here go way outside of the PLP/UBP/OBA’s control. Job losses will continue despite OBA measures to make Bermuda more “friendly”. And that is perfectly understandable given our frighteningly under diversified economy. Can’t blame work permit term limits, xenophobia and Colonel Burch soundbites at this point. Probably couldnt give much weight to it a few years ago frankly. At this stage, we can only blame the guys who refuse to pull the trigger on introducing new industry and revenue streams, and that includes ourselves.

    • realnews says:

      Exactly! If the PLP did not so grossly overspend they may have been able to un-muddy the water as to how the (ongoing and worsening recession/depression) from 08′ was beyond their control. And anyone not parroting MSM and who actually understands the global economy knows that it is going to be way worse this time when the bottom falls out! OBA – unfortunately in winning the last election you sealed your fate in the next one. But again… way beyond your control what is about to take place in the global marketplaces. Bore central bank printing anyone? QE4 anyone? Negative interest rates anyone? Debt monetization anyone?

      Hang on to your hats Bermuda – and your property…which our “honorable” Mr. Fahy would so readily have you sell off….

      • realnews says:

        “More” central bank printing…I know how the jack booted grammar police get on here…

        Sorry.

  7. campervan says:

    City of London is also planning to take a big bite of the Bermuda ILS business.
    Speaking with expat workers in the field, some are excited by the prospect of being shifted to a locale where they don’t need to jump through immigration hoops and they can buy property etc.

    • Villager says:

      I’m one of those expats in the field. It’s cold and you pay tax in London. There is more to do though, and
      I agree the PLP makes you feel about as welcome as a nasty cold.

      • campervan says:

        Of course if you were working in Cayman, you would have the option to buy a family home and apply for naturalisation after a period of time.
        I can see the appeal to re locate.
        We need to make ourselves more Red Carpet.

      • Jonah says:

        And Corporate Raiding makes you all comfy?

        • campervan says:

          I’m not really sure what you are talking about in relation to my point?

          Simply put, there are quite a few specialised and talented “Re” guys working in Bermuda. Some of them have been here 10…15…20 years and as things stand they are unable to fully partake in the benefits of the Island.

          (eg) having their own home. Voting etc.

          Now if another jurisdiction comes along and offers to treat them and their families as equals and offers them those benefits. can you see why they might be excited about a possible relocation?
          .

    • Jonah says:

      We started down this slippery slope when we got in bed with ReInsurance, those many years ago. We have all become accustomed to big houses and huge cheques. My parents lived a simple, stress free life, taking the odd vacation and saving for Christmas gifts on layaway.

      Be careful of taking & becoming 100% dependent on things you can’t give back.