This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Reinsurance Sector Set for Mergers

Stocks in this article: TRHAWHAIGENHESGRPTPMRH

Stocks of reinsurers such as Endurance Specialty, Platinum Underwriters and Montpelier trade at a price-to-book of less than 1. Such valuations are attractive to buyers but could result in lengthy battles over pricing of the deal as sellers will be reluctant if the offer price is too low.

Another challenge, according to Carvalho, is that businesses need to find a good match. Transatlantic and Allied were complementary businesses, with the former dealing chiefly in reinsurance and the latter in insurance. But other global reinsurers are more diversified and involved in all types of businesses, which could pose integration risks.

And while smaller companies might be inclined to consider mergers to grow bigger, size is not always an advantage, Carvalho adds. Smaller reinsurers can be more nimble and insurance companies continue to do business with smaller reinsurers because they wish to avoid counter-party concentration risk that could arise in working with only one or two big players.

Management's outlook for the market could also be a driver for deals, according to Moody' Lee. "In the past, deals have been more "soft market" transactions where the acquiring company has simply returned excess capital to shareholders.The Allied-Transatlantic deal is more of a "hard-market" transaction, where they are building a balance sheet to capture benefits of a potential hardening of prices in the reinsurance market," said Lee.

Analysts at A.M. Best said that while a soft pricing market tends to stimulate merger activity, deals with somewhat ideal conditions like the Transatlantic-Allied merger are hard to come by. "You have to find organizations that have complementary businesses, no overlap, clean succession plan in terms of senior management and similar cultures. Both these companies were born out of AIG and their cultures are similar. The managements have a long-standing relationship. Senior managements have to come together."

Shares of Transatlantic were climbing 10% to $48.50 Monday . Shares of Allied World were slipping 4% at $55.74.

--Written by Shanthi Bharatwaj in New York



>To contact the writer of this article, click here: Shanthi Bharatwaj.

Readers Also Like:


Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs