SiriusPoint aims to be ‘steps ahead’ of class of 2020

  • Merger deal: Third Point Re is to combine with fellow Bermudian reinsurer Sirius Group (File photograph)

    Merger deal: Third Point Re is to combine with fellow Bermudian reinsurer Sirius Group (File photograph)

Investors are putting together capital to create what could become a “class of 2020” group of new insurers, according to the chief executive officer of Third Point Re.

But Dan Malloy believes that his company, which announced a proposed merger with fellow Bermudian re/insurer Sirius Group on Friday, will have many advantages over the market newcomers.

The combination will create a new $3.3 billion reinsurer called SiriusPoint, to be led by Siddhartha Sankaran, while Mr Malloy will remain a senior underwriting executive after the closing.

In a conference call on Friday to discuss the merger with analysts, Mr Malloy said: “Potential new class of 2020 insurers are still in the process of starting up from scratch. But at closing, SiriusPoint will already be many steps ahead.

“We will be a significant player with a capital structure, platforms, underwriting talent, and most importantly, the clients already in place. We expect to improve profitability by deepening these all-important client relationships and offering a wide range of coverage at a time we are needed more than ever.”

Bermudian companies including Fidelis, RenaissanceRe, Arch Capital, Hiscox and Lancashire have raised billions of dollars in capital as they look to seize opportunities emanating from rising prices across many insurance lines, driven by industry factors including three years of heavy catastrophe losses, billions of dollars of trapped capital in collateralised reinsurance vehicles and hefty and ongoing claims related to the Covid-19 pandemic.

Some in the industry believe that the market conditions could spawn a wave of new companies setting up in Bermuda as they did after previous market dislocations in 1992 and 2001.

Hardening prices was also one of the catalysts for the Third Point-Sirius deal. Sirius and majority shareholder China Minsheng Investment Group Corp Ltd, launched a process to sell the re/insurer in March this year. Although the deal has been characterised as a merger it would appear to be a reverse takeover, with Third Point Re, the smaller of the two companies, the buyer. That is the view of Fitch Ratings, which in its commentary referred to Sirius having “entered into an agreement to be purchased by Third Point Reinsurance Ltd”.

Mr Sankaran the former chief financial officer of American International Group who was recently named non-executive chairman of Third Point Re’s board, said on the conference call: “This transaction is all about looking forward towards market opportunities. The combination of the two companies will provide SiriusPoint with a larger capital base that will enable us to capitalise on improving market conditions”.

Mr Sankaran added that Sirius had $2.6 billion in total capital and provided a wide range of coverages to clients in nearly 150 countries.

Sirius is based in offices at 14 Wesley Street, Hamilton, while Third Point Re’s head office is in Waterloo House.

Billionaire hedge fund manager Dan Loeb, who founded Third Point, said: “This transaction fulfills our vision to move Third Point Re up the quality curve by adding diversified insurance lines to our existing business, thus improving returns on capital and reducing insurance volatility, expanding our investment strategy from a single manager model to reduce investment volatility, and creating critical mass to support both internal growth and future acquisitions.

“I am confident that this transaction will benefit both customers and shareholders of Third Point Re and Sirius.”

Based on the closing price of Third Point Re stock on August 5, the transaction is valued at approximately $788 million.

As part of the cash-and-stock deal, Mr Loeb, who manages Third Point Re’s investments and is the company’s largest individual shareholder, has agreed to buy $50 million worth of shares in the combined entity when the deal closes.

Steven Fass, Third Point Re’s former lead independent director, will join the company as vice-chairman. Mr Fass is also a former CEO of Sirius Group.

Under the terms of the deal, Sirius shareholders will have several options. They can receive $9.50 per share, or 0.743 of Third Point Re shares, and a contingent value right which in two years will guarantee them equity and cash at a minimum of $13.73 per share.

China Minsheng Investment Group, which is Sirius’s majority shareholder, has opted for a third option.

The Shanghai-based investment group will receive $100 million in cash and approximately 58 million Third Point Re shares, as well as a portion of series A preference shares, warrants and other securities.

The agreement also gives Third Point Re shareholders protection from up to $100 million of net incremental Covid-19 related losses at Sirius that are incurred, in certain cases, for up to three years following the closing of the deal.

The agreement has been unanimously approved by both companies’ boards of directors and is subject to approval by shareholders and regulators.

CMIG, which owns some 96 per cent of Sirius Group’s shares, has already entered into a binding agreement to vote in favour of the merger transaction, as has Mr Loeb.

Meyer “Sandy” Frucher, non-executive chairman of Sirius Group, said: “This strategic business combination is the result of a lot of hard work and the collaborative efforts of the Sirius Group Board, management team and CMIH and is a win-win for both Sirius Group and Third Point Re.

“I would especially like to acknowledge and thank Kip Oberting and Gene Boxer for their dedication and tireless efforts to ensure the successful resolution and conclusion of the firm’s strategic review process.”

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Published Aug 10, 2020 at 8:00 am (Updated Aug 9, 2020 at 7:58 pm)

SiriusPoint aims to be ‘steps ahead’ of class of 2020

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