Novae eyes possible merger with Omega

There were renewed signs of consolidation activity in the Lloyd's of London insurance market yesterday after Novae said it was studying the possibility of a merger with rival group Omega.

A combination could lead to the creation of a new firm boasting a market value of upwards of £400m. Novae said the move was in line with its strategy of routinely reviewing potential transaction, adding that it was "currently undertaking due diligence in evaluating the merits of proposing a possible merger with Omega".

Although there is no certainty that an offer will be forthcoming, the possibility of a Novae-Omega combination comes against the backdrop of growing deal activity in the Lloyd's market as insurers seek ways to adjust to falls in global insurance prices.

The sector has also been hit by the recent string of catastrophes, including the recent devastating earthquake and tsunami in Japan.

Back in April, rival group Chaucer announced plans to sell itself to the US firm Hanover Insurance, while Brit Insurance was sold to private equity groups Apollo and CVC Capital Partners in September last year.

Another Lloyd's of London firm, Beazley, is currently on the prowl for possible targets after failing in its bid to buy rival group Hardy last year.

Novae is the latest company to eye Omega, which reported a wider-than-expected full-year loss in March. The company received an unsolicited approach from privately owned peer Canopius at the beginning of the year, and further approaches from unnamed suitors in March.

Nick Johnson, an analyst at Numis, said a merger with Novae would yield benefits. "Novae's got a strong operating platform, which could support Omega, and Omega's Bermuda business could provide a natural growth channel for Novae's business, which is more Europe-based," he explained.