Posted on 07 Feb 2012
Lloyd's of London insurer Beazley P.L.C. said its takeover interest in smaller rival Hardy Underwriting Bermuda Ltd. would likely trigger competing bids as insurers face continued pressure to merge because of weak prices and tighter capital requirements.
Beazley, which abandoned a £180 million ($284.7 million) offer for Hardy in 2010, on Tuesday also reported a 75% slump in its 2011 profit as catastrophe-related claims more than doubled.
Beazley Chief Executive Andrew Horton said the company's latest takeover approach, launched before Christmas, would probably trigger interest from other potential acquirers.
"Nobody else has actually announced they're interested, but the information we get is that is that it's going to be competitive," he told Reuters in an interview, adding he had "no idea" who the other potential bidders were.
"We will go through the process in a disciplined manner, and hopefully we will be successful," Mr. Horton said.
Lloyd's insurers are seen as ripe for consolidation because persistently weak insurance prices have weighed on their shares, opening up potentially attractive takeover opportunities.
Smaller players in the sector also look vulnerable ahead of the European Union's strict Solvency II capital regime for insurers, scheduled to come into force in 2014.
Peer Chaucer Holdings P.L.C. accepted a £292 million ($461.8 million) offer from The Hanover Insurance Group Inc. last year, while Brit Insurance Holdings N.V. succumbed in 2010 to a bid from buyout firms Apollo Management VII L.P. and CVC Capital Partners Ltd.
Beazley made a 2011 pretax profit of $62.7 million, down from $250.8 million in the previous year, and in line with analysts' forecasts, the company said.
The decline reflected $215 million of catastrophe claims as Beazley absorbed losses from earthquakes in Japan and New Zealand, tornadoes and hurricanes in the U.S., and flooding in Thailand and Australia.
Insurers were hit by an estimated $108 billion of catastrophe-related claims in 2011, according to reinsurer Swiss Re Ltd., making it the industry's second-costliest natural disaster year after 2005, when Hurricane Katrina devastated New Orleans.
Catastrophe-exposed policies account for about 25% of Beazley's business, less than most of its peers in the Lloyd's of London market.
The company will probably be the only listed Lloyd's insurer to turn a profit in 2011, Espirito Santo analyst Joy Ferneyhough wrote in a note.
Beazley said it was able to increase its prices by an average of 1% as customers renewed their policies in January, compared with a 2% decrease a year earlier.