Argo Group buys Ariel Re for $235 million, advances strategic plan

Bermuda domiciled specialty insurance and reinsurance provider, Argo Group International Holdings, Ltd., has announced the acquisition of re/insurer Ariel Re for approximately $235 million in cash as it looks to advance its strategic plan.

Brazil’s Grupo BTG Pactual and the Abu Dhabi Investment Council both hold a 50% stake in the reinsurer, but subject to regulatory approval each has agreed to the $235 million sale of the reinsurer to Argo Group.

The sale of Ariel Re has been market chatter for some months now, with a number of companies and groups of investors kicking the tires. Originally it had been thought that Ariel Re’s investors BTG Pactual would be the one selling its stake, but it seems the only way to seal that exit was to have the entire reinsurer part of the deal. The news that Argo was likely to announce a deal was a market rumour in Bermuda just last week, with many contacts saying that an announcement was imminent.

Jose Hernandez, head of Argo’s International Business, will lead the combined Ariel Re and Argo Re, and the Bermudian player is confident that this will result in a truly market-leading business, bringing meaningful and immediate benefits to both earnings and return on equity.

“There is great synergy between the teams from both companies and we are looking forward to working together to strengthen the offering for our clients. Argo Group have long been supporters of Ariel Re and we are delighted to take this relationship forward by bringing Ariel Re under the Argo banner,” said Ryan Mather, Chief Executive Officer (CEO) of Ariel Re.

Ariel Re has a well-diversified book of business, in terms of distribution, regional exposure and peril, and underwrites its insurance and reinsurance business through its Lloyd’s Syndicate 1910. The deal provides Argo Group with increased diversification, which should enable the firm to better manage market cycles.

Furthermore, Ariel Re’s unique modelling and risk analytics tools will be a complement and supplementary to Argo Group’s strong underwriting analytics, providing the Bermudian re/insurer with the ability to utilise new capabilities across all of its business.

“Ariel Re is a terrific fit for Argo Group – operationally and culturally. We remain focused on delivering enhanced shareholder value.

“This transaction enables us to build upon the successes realized individually by Argo Group and Ariel Re, utilizing our combined strength to deploy capital in selected areas to produce maximum return and continued growth,” said Mark Watson III, CEO of Argo Group.

Watson further explained that the acquisition would see Argo Group have a “well-diversified portfolio mix,” which will be roughly 88% primary insurance and 12% reinsurance.

“This acquisition is part of Argo Group’s strategic initiative to build scale in its London, and Bermuda-based platforms by adding complementary lines of specialty business,” said Watson.

In addition to the announcement, Watson also provided a message for investors and the broader marketplace on what the acquisition means for Argo Group, expanding on the values and synergies of bringing Ariel Re under the Argo Group brand.

“If you look a the business mix it gives us a little bit more diversity, mainly it gives us more scale, and it gives us a chance to bring in more talented people to our organisation that are complementary to the people we already have. So I think it’s a really good deal,” said Watson.

Watson continues to note that the deal enables the firm to accelerate its strategic plan, in terms of its Bermuda reinsurance unit and its Lloyd’s Syndicate.

The fact that the majority of Ariel Re’s business flows through the specialist Lloyd’s of London insurance and reinsurance marketplace, provides Argo Group with an opportunity to create more “critical mass” for what the re/insurer is already doing in London, and the same applies to its property cat reinsurance portfolio in Bermuda, says Watson.

As mentioned previously, Watson expects that the acquisition will be accretive to earnings and return on equity with immediate effect. However, Watson did stress that it will be marginally dilutive to tangible book value in the early days, but he does expect this to reverse fairly quickly.

“I think it’s a good fit for us strategically, it improves our market presence both in Bermuda and in Lloyd’s. It makes us a top ten, or maybe 12 market at Lloyd’s, and it moves us up the leaderboard in Bermuda as well,” said Watson.

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