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Transatlantic And Allied World Mutually Terminate Merger Agreement


Much has developed over the past several months.  We are writing this letter to share with you our perspective on these events and the actions we have taken, including those announced today.

Upon gaining full independence from AIG in 2010, we began addressing several strategic objectives to enhance our industry-leading position.  In June of this year, we reached a merger agreement with Allied World that we believe would have accelerated the achievement of these objectives in a book value for book value transaction that offered significant incremental value for our stockholders.  

After listening carefully to our stockholders, we have mutually terminated the merger agreement with Allied World and canceled the Special Meeting of Stockholders called for September 20, 2011.  Furthermore, today we announced an increase in our stock repurchase program to $600 million, which we intend to execute alongside our existing strategic initiatives.  

Moving forward, we remain highly optimistic about our future.  Transatlantic has an excellent track record of growing book value over its 20-plus years as a public company.  We have a strong brand, a highly regarded global franchise and one of the most respected underwriting teams in the industry.  We have always liked our prospects and we continue to be enthusiastic about them today.  

In this letter, we want to take the opportunity to set the record straight about the events of the last several months.  We will also address unfounded allegations and misstatements made by Validus during the course of its efforts to acquire the Company.  Finally, we will provide more insight on where we go from here.  

Let's start by taking a closer look at how we developed the strategic plans that ultimately led us to recommend the merger with Allied World.

Transatlantic's Strategic Review Process

Transatlantic emerged as a fully independent, publicly traded company in March 2010.  No longer facing the strategic restrictions imposed by AIG's majority ownership, we undertook a full analysis of the competitive landscape and our franchise.  We concluded that Transatlantic has a strong competitive position, a solid balance sheet, a well-regarded risk management process and a valuable brand.  We also identified strategic imperatives that would enable us to compete most effectively over the long-term:
  • Enhance our operational flexibility to allow us to meet regulatory requirements
  • Broaden our distribution to include U.S. primary insurance capabilities
  • Lower our cost of capital and enhance our earnings

We developed and began executing plans to address these initiatives independently, but we also determined that a strategic combination could accelerate our ability to achieve our strategic objectives while preserving our ability to return capital.

Accordingly, we evaluated potential partners, including Allied World, Validus Holdings and a number of others, through a lengthy process that included substantial internal and external analyses and conversations with several companies.  Allied World emerged from this process as the strongest candidate.  We were able to reach a fairly valued financial transaction that met all of our desired strategic criteria:
  • Fair valuation – an exchange ratio based on at least book value for book value  
  • Favorable domicile – with U.S. tax treaty
  • Properly capitalized EU subsidiary – support $1 billion-plus of premium 
  • Maintain strong ratings – S&P A+ rating
  • Financial flexibility – balance market opportunities with return of capital
  • Established U.S. insurance company – broaden distribution
  • Cultural fit – preserve strong risk-management and underwriting expertise
  • Significant upside for stockholders – path to long-term value creation

We had hoped to complete the Allied World merger because of its outstanding strategic and financial benefits, and we believe this path was superior to the alternative proposals that have since emerged.  However, the decision to approve this merger transaction was ultimately the stockholders' and a majority were not supportive. Let's take a look at each of the alternative proposals now.

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