Alleghany said to mull TransRe sale. Could see Pillar ILS stake sold too

Reports suggest that insurance and reinsurance holding company Alleghany Corporation is mulling the sale of reinsurer TransRe (or Transatlantic Holdings Inc.), which could include the sale of its stake in ILS asset manager Pillar Capital.

In the latest merger rumour to hit the reinsurance industry, Reuters reported this evening that Alleghany has received at least one approach from parties interested in buying TransRe.

With traditional reinsurance companies increasingly feeling the pressure of higher competition and lower rates, caused by excess capacity among traditional peers and the growing influence that insurance-linked securities (ILS) and the capital markets wield, M&A activity is on the rise.

The holding company is said to be working with investment bankers to determine the most appropriate response to the takeover interest, but is reported to be as yet undecided as to whether to sell reinsurance firm TransRe and sources said that no deal is imminent.

Alleghany acquired TransRe in 2012 for $3.5 billion, but Reuters suggest that a sale now could net the holding company as much as $6.5 billion, clearly demonstrating the huge value creation that the reinsurance industry has experienced in recent years.

With that kind of mark-up on its purchase price for TransRe, you could not blame Alleghany for selling the reinsurer.

Intriguingly, and adding interest for Artemis readers, TransRe holds a strategic stake in Bermuda based specialist ILS investment manager Pillar Capital Management. TransRe also made a multiple year commitment to Pillar Capital’s ILS funds at the same time and it has continued to grow that commitment over the last few years.

Alleghany itself also has a commitment to the Pillar Capital ILS funds, having invested $25m itself alongside $175m that TransRe invested across certain limited partnership ILS funds operated by Pillar Capital. In its last quarterly report, Alleghany consolidated the investments in Pillar and its ILS funds as a single figure, reporting their value as $242.3m at the 31st March 2015.

That’s a decent sized stake in the asset managers ILS funds, while the management share of Pillar Capital owned by TransRe is 50%. It would be interesting to see whether Alleghany might seek to maintain that management stake, if indeed the rumour of a sale of TransRe turned out to be true.

The relationship with Pillar Capital and its ILS business has certainly paid off for Alleghany, with a growing contribution and profit flowing back from its stake and investments. Given Alleghany has a strong interest in asset management as well, it could make sense for the relationship to continue, whether TransRe’s traditional reinsurance business changes hands or not.

Remember, at this time these are still rumours from a Reuters source. We’ll update you should anything further be revealed on a potential TransRe sale in the coming days and weeks.