Rating agencies react to $788m Third Point Re-Sirius merger deal

Ratings agency AM Best has removed Sirius Group from "under review with negative implications" and placed Third Point Re "under review with developing implications" following their  agreement to merge in a $788 million cash and stock deal.

Meanwhile, Fitch Ratings has removed Sirius Group ratings from "Rating Watch Evolving", citing that the transaction improves its financial flexibility with increased public common equity float. Fitch views that the transaction is overall neutral to Sirius, pointing to "weaker financial performance and earnings" of Third Point Re as the company posted an underwriting loss in every year since its 2012 inception.

Overall, Fitch views that the combined organisation, to be named SiriusPoint, will remain supportive of Sirius's current ratings, with improved capitalisation, manageable catastrophe exposure and reasonable investment risk.

As for AM Best, the under review with developing implications status reflects the need for it to fully assess the financial and operational impacts of the transaction, including potential benefits to Third Point Re's business profile.

According to the agency, "the addition of the SIIG business is expected to add approximately $1.9 billion to TPRE’s $600 million in gross premium written. The additional business not only adds size, which is expected to enhance TPRE’s market profile and add scale, but augments business diversification as SIIG has a larger global presence and has insurance operations in addition to its reinsurance platform."

AM Best also noted that China Minsheng Investment Group (CMIG), which currently owns 96 percent of Sirius, has a "significantly weaker credit quality than Third Point Re and has lacked transparency when dealing with AM Best".

AM Best expects to resolve the under review with developing implications status after the close of the transaction, which is expected to complete during the first quarter of 2021.

In March 2020, Sirius launched a formal process to sell the company in collaboration with its majority shareholder CMIG. Earlier last week, Third Point Re and Sirius announced that the two companies have entered into a definitive agreement to merge and create a global company with approximately $3.3 billion of tangible capital, to be renamed SiriusPoint.

Third Point Re will finance the transaction through a combination of cash-on-hand and equity issued to Sirius Group shareholders. Sirius currently has $685 million of debt that will remain outstanding and $223 million of preferred shares, which will be redeemed as part of the transaction.