Arch Capital Group Ltd. said it would pay $622 million in cash for Watford Holdings, a Bermuda-based property/casualty insurer and reinsurer it already has a stake in and helped launch in 2014.

Watford’s website notes that Arch subsidiaries manage its underwriting operations, and that Arch has $100 million in common shares of the company.

The planned acquisition comes about a year after Watford went public. Since then, as Reuters reported, the company’s shares have plunged in value as investors questioned its ability to generate enough from investment returns to adequately cover expenses while paying out insurance policies. Arch’s offer narrowly beat out one from Enstar Group Ltd., which also made an all- cash offer to purchase Watford Holdings at $31.00 per ordinary share, or $620 million.

Plans call for closing the acquisition in the 2021 first quarter, after which Watford will continue as a standalone business and remain consolidated with Arch’s financials.

Arch President and CEO Marc Grandisson said in prepared remarks that Watford has been a valued part “the Arch story” since Arch help launched it in 2014.

“Our longstanding contractual partnership with and financial consolidation of Watford expedited the due diligence process and should give all stakeholders confidence in our ability to close this transaction quickly,” Grandisson said. “Watford’s policyholders and trading partners will benefit from the continued underwriting strength and service they have come to expect from Watford and Arch.”

Jon Levy, Watford’s president and CEO, explained in prepared remarks that Arch’s acquisition gives Watford “a clear path forward” as well as “an attractive premium to shareholders in a transaction with a high degree of certainty to close.”

He said that Watford will be better able to pursue its strategic priorities and growth plans as a standalone business within Arch.

“We expect a seamless transition for our clients, trading partners and policyholders, who we think will benefit from Watford becoming part of a larger organization with greater resources,” Levy added.

The Arch/Watford M&A agreement requires approval by holders of the majority of Watford’s outstanding shares. Arch, which currently owns approximately 13 percent of Watford’s outstanding shares, has committed to vote in favor of the transaction. In addition, Arch’s directors and executive officers own approximately 2 percent of Watford’s outstanding shares, the company said.

A.M. Best announced on May 1 that it had placed under review with negative implications the financial strength ratings of Watford’s operating subsidiaries. On May 7, 2020, Kroll Bond Rating Agency affirmed the “A” insurance financial strength ratings of Watford’s operating subsidiaries as well as the “BBB+” credit rating of Watford Holdings Ltd., with the outlook for all ratings revised to negative.

Source: Arch Capital Group

*The Insurance Journal contributed to this story.

Topics Mergers & Acquisitions