The board of directors of Lancashire Holdings Limited announced Wednesday that it has entered into conditional agreements to acquire the entire issued and to be issued share capital of Cathedral Capital Limited, a privately owned Lloyd’s insurer, from Alchemy Partners and Cathedral management, together with loan notes issued by Cathedral’s subsidiary, Cathedral Capital (Investments) Limited for £266 million ($410 million).
The deal price represents a multiple of 1.60x net tangible assets of Cathedral as at Mar. 31 2013.
According to Lancashire’s statement about the acquisition, Cathedral is an established specialty insurance and reinsurance provider that operates exclusively in the Lloyd’s insurance market and writes insurance and reinsurance business in property, direct and facultative property, aviation, satellite, marine cargo and contingency classes. Property reinsurance, direct and facultative reinsurance and aviation reinsurance represented over 80 percent of Cathedral’s 2012 portfolio.
Lancashire, with underwriting operations in Bermuda and London, focuses on short-tail, specialty property insurance, writing in four main areas: aviation, energy, marine and property.
Lancashire’s board believes that the existing businesses on Cathedral and Lancashire are a strong complementary fit, adding that the transaction represents a rare opportunity to acquire a high-quality Lloyd’s business with a short-tail focus, strong business model fit and robust underwriting performance. The combined group will have access to an enhanced insurance and reinsurance platform and will benefit from direct participation in Lloyd’s, the world’s leading specialist insurance market.
The statement announcing the deal said that it further provides Lancashire with flexibility to respond to the changing industry and market environment which increasingly requires multiple distribution capability.
Lancashire will pay the £266 million in cash on completion to Alchemy Partners and the other Cathedral shareholders, funded through a combination of internally available cash resources and the net proceeds of the placing of up to 16,843,382 new common shares in the company, representing approximately 9.99 percent of the company’s existing issued share capital, with institutional investors.
Lancashire said it remains committed to its core strategic objectives—giving strategic priority to an “underwriting comes first” and nimble operating approach. Cathedral is an underwriter-led and highly streamlined business with a track-record of excellence that is well aligned to approach, the company said.
The acquisition provides Lancashire with scale in existing lines of business and opportunities for further organic growth.
Source: Lancashire Holdings Limited