Catlin yesterday unveiled a £591m takeover of its rival Wellington in a move that will create the biggest insurance syndicate yet seen at Lloyd's of London.
Catlin also offered 1,200 individual Lloyd's names £119m to buy out their 25 per cent stake in the underwriting capacity of Wellington's syndicate 2020 - an average windfall of £100,000 each.
The company wants to merge the syndicate with its own syndicate 2003 to create a new vehicle with an insurance underwriting capacity of £1.25bn. Analysts said the offer to names was "highly generous".
The takeover of Wellington will create a £1.3bn company with a leading position in almost every category of businesses it writes at the London insurance market.
It is the first significant deal in several years between companies operating at the market and immediately sparked speculation that there may be more to come in the fragmented sector.
Catlin will pay 35p and 0.17 of its shares for every Wellington share. It plans to reap savings of $70m (£36.8m) in the merged company's first year of operations. About $24m of the planned savings will come from a reduced tax bill because the enlarged group will be domiciled and headquartered in Bermuda, where it will pay a fraction of the tax Wellington paid in London.
A steady stream of London-based insurers have been moving to Bermuda to take account of its low taxes and light regulation. A further $24m will be saved through cheaper reinsurance costs, with most of the remainder coming from reducing overlaps such as IT and office costs.
In total the two groups are likely to take in around $2.5bn in premiums, with businesses in Bermuda and the US as well as Lloyd's. The group will also have an investment portfolio of $4.5bn.
Stephen Catlin, chief executive of Catlin, said: "We are expecting almost total take-up of the offer to names. This is probably the most attractive deal to buy out a syndicate's capacity that they have been offered."
Nick Johnson, insurance analyst at Numis, said that for the deal to succeed it would be crucial for the merged group to keep hold of the top underwriters from the two companies. He said: "It's a good deal for Wellington because it realises value for shareholders more quickly than if Wellington had tried to grow the business itself.
Wellington's chief executive Preben Prebensen, a former UK head of investment banking at JP Morgan, will stay on as deputy chief executive and will head up the integration committee.
He emphasised that the company was keen to retain its top underwriters: "We love them, and they know they are loved."
Wellington shares closed up 6.25p at 117.75p. Catlin lost 17p to 491.5p.Reuse content