The transaction will see AmTrust end its direct interest in Lloyd’s although it does take a double digit minority stake in Canopius through the deal
Canopius looks set to complete the acquisition of AmTrust’s Lloyd’s business, and become one of the largest franchises in the market.
Canopius chairman Michael Watson confirmed to Insurance Times that a letter of intent had been signed agreeing commercial terms for the transaction, and that the deal was “99% there”.
He expects the deal to complete in Q3 2019, with AmTrust taking a double digit minority investment in Canopius as part of the deal.
The deal, first reported in Insurance Insider, will see AmTrust’s $800m 2019 book bought by Canopius. It currently writes $1.4bn.
The AmTrust syndicate 1861 will continue to trade for 2019, running parallel to the Canopius syndicate 4444. But from 2020, the syndicates will be combined under 4444, and AmTrust will end its direct interest in the Lloyd’s market.
However, Watson clarified it was only the 2019 year account Canopius was purchasing, including the book of the business, underwriters and management. Canopius will not be taking financial exposure to 2018 and prior.
Watson told Insurance Times that Canopius would benefit from the scale it would bring to the specialty re/insurer. The deal is expected to make Canopius one of the top five managing agents at Lloyd’s.
“At a strategic level, we do believe that scale is helpful,” he said. “It doesn’t guarantee success, but it creates more opportunities for success.
“The way the insurance model is moving, and particularly within Lloyd’s, it’s important to have sufficient capacity, scale and expertise to appeal to clients and brokers, and this will undoubtedly help us to do that better.”
Canopius has a high catastrophe exposure, and Watson said another benefit of the AmTrust deal would be to diversify its book and generate more stable annual earnings.
Watson added: “Our results have historically been more volatile than we would want. The AmTrust catastrophe exposure is significantly less, and when you combine the two it’s certainly significantly less.
“We think that over time that will result in more stable earnings, and that will create additional franchise value. People like to buy into profitable businesses with greater predictability associated with them.”
And the deal will give Canopius an entry to the cyber market – a class Watson said Canopius had been looking to enter for some time.
He added: “Cyber is a stand-out for us, and this deal certainly means we don’t have to start from scratch – there’s an established business with a good leader, and that’s something we’d hope to develop further over time.”
The acquisition is Canopius’ first since it regained its independence in September 2017 – getting bought by a private equity consortium led by Centerbridge Partners.
Watson said managing the acquisition and integrating AmTrust would be the central focus for Canopius this year, and that there would be no more M&A activity in 2019.
”This is a big transaction, no question about that, so making sure that this happens and smoothly – that we take the benefits from what we accrue - that’s going to occupy all of our energy in 2019,” he added.
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