White Mountains sells Sirius to China Minsheng Investment Corp.

by Artemis on July 27, 2015

Another day another reinsurance M&A transaction is announced. White Mountains has announced the sale of its Sirius International Insurance Group, Ltd. unit, which underwrites P&C re/insurance, to Chinese investment group China Minsheng Investment Corp., Ltd.

White Mountains Chairman and CEO Raymond Barrette said; “This is a win-win-win transaction.  Sirius is a high quality reinsurer with a strong franchise and a great track record. The acquisition by CMI recognizes this value and opens doors for Sirius to new opportunities in Asia, especially China.  We wish Allan Waters and his Sirius team continued success, as they become the reinsurance arm of CMI.  Thank you for your great results over many years.”

CMI are set to pay a cash price equivalent to 127.3% of Sirius’s closing date tangible common shareholder’s equity plus $10 million. That equates to a purchase price of approximately $2,235 million, based on Sirius’s tangible common shareholder’s equity of $1,748 million at December 31, 2014.

White Mountains says that it expects that the transaction will increase its adjusted book value by approximately $65 per share, subject to Sirius’s interim results through closing.

Barrette continued; “Net of the OneBeacon and Symetra positions to be repurchased by White Mountains from Sirius in connection with the transaction, our undeployed capital is expected to increase by $1.4 billion to about $2 billion. The board will carefully review the additional capital management options available to the Company when proceeds have been received.”

CMI is a diversified Shanghai-based investment company founded in May 2014. It is focused on industrial integration and seeks to build itself into a global financial holding company. At December 31, 2014, CMI had over $6 billion of shareholders’ equity.

There are a number of large Chinese investment holding and industrial groups which are targeting insurance and reinsurance market entry, as they see it as a good way to acquire float to put to work alongside their investment portfolio.

This model, and the significant capital wielded by these large Chinese investment groups, could become a significant disrupting factor for traditional insurance and reinsurance firms, as once owners of re/insurers these group’s can operate an efficient capital model as part of their diversified investment holdings.

Sirius underwrites worldwide property and casualty reinsurance and insurance through its affiliates Sirius International Insurance Corporation, Sirius America Insurance Company, Lloyd’s Syndicate 1945 and Sirius Bermuda Insurance Company Ltd. Sirius also provides exit solutions for run-off companies and their portfolios through its subsidiary, White Mountains Solutions, Inc.

Allan Waters, CEO of Sirius, commented; “The Sirius management team is excited to be joining the CMI family. CMI is strongly capitalized and intends to further grow Sirius’s already substantial capital base. China is one of Sirius’s most important markets, and CMI is the perfect partner for Sirius to continue its Asian growth strategy.”

Sirius also had a capital markets unit, Sirius Capital Markets LLC, focusing on launching a number of insurance-linked securities (ILS) fund strategies and raising third-party capital. However that unit was folded back under the watch of White Mountains Capital, the parent group’s capital markets unit, so it’s uncertain whether it will be included in the sale to CMI.

Sirius Capital Markets had changed its focus to sidecars and reinsurance quota shares in recent months anyway, as the fund initiatives had been closed.

Update: Artemis has been told that the remaining activities of the Sirius Capital Markets unit and White Mountain Solutions will be transferring across to CMI along with the rest of the Sirius businesses.

The M&A transaction is expected to close within six months once regulatory and other customary approvals are received.

This sale of Sirius, which had been expected as the reinsurer had been offered around the market for a number of months according to sources, further underscores the continued attraction that reinsurance and insurance business have for large investment conglomerates.

Investment holdings groups which operate across a wide range of industries are looking at insurance and reinsurance as a diversifier, source of capital float and to leverage the premium flows from re/insurance to build their diversified businesses.

As this new capital continues to come into reinsurance through these acquisitions it could further exacerbate the pressure on traditional players, as some of these new acquirers will operate their newly acquired reinsurance arms with a very different outlook on efficiency under their diversified operations.

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