Montpelier Re deal won’t satisfy Endurance’s appetite

The proposed acquisition of Montpelier Re might not satisfy Endurance’s appetite, making another deal in the next year likely.

This is according to Meyer Shields, managing director at Keefe, Bruyette & Woods (KBW), who said: “I think that once the next 6-9 months go by, Endurance could be interested in another deal to further enhance its premium volume. I certainly don’t expect the industry’s outlook to improve enough to provide better organic opportunities for capital deployment.”

He explained that the deal is an ‘okay’ acquisition, representing less strategic benefit when compared with the proposed acquisition of Aspen.

“Endurance’s main goal is to grow in specialty insurance lines, and Montpelier Re is almost 75 percent reinsurance, and a big chunk (30 percent of 2014 gross written premiums) is property catastrophe reinsurance, which is somewhat out of favour,” said Shields.

“On the plus side, it provides Endurance with a decent Lloyd’s platform, and an experienced third-party capital management business (Blue Capital Management), and it’s not terribly expensive, particularly when adjusted for likely strong earnings in the first quarter of 2015 and Montpelier Re’s presumed reserve redundancies.”

Shields doesn’t expect the combined books to significantly improve Endurance’s position in the market, although the bigger book of business and Lloyd’s platform should provide some benefit.

On the effect on share prices, he said: “I expect some pressure on Endurance because of the dilution to its tangible book value per share. Montpelier Re’s share price currently anticipated a takeout, and any pressure on Endurance’s shares also shrinks the 5.5 percent premium to Montpelier Re’s close yesterday.”