Moody’s said Zurich’s proposed acquisition of Beazley would be credit positive for the Swiss insurer, accelerate its efforts to establish a leadership position in specialty insurance, and drive further consolidation in the cyber insurance market in which both parties are major players.
On Monday, Zurich announced it had submitted a 7.7 billion pound ($10.3 billion) cash offer to acquire 100% of the specialist insurer, after an earlier bid was rejected after Beazley’s board deemed the company significantly undervalued.
Under the new proposal, Zurich will pay Beazley shareholders 12.80 pounds per share in cash, a 56% premium to the previous day’s closing price and higher than the 12.30 pound offer that was rejected earlier. That’s equivalent to 2.2 times Beazley’s book value.
Moody’s said the acquisition of Beazley will accelerate Zurich’s strategy to build a leadership position in specialty insurance, which is reported to have strong demand-led growth and resilient underwriting earnings.
As mentioned earlier, the rating agency also observed that the merger will drive some consolidation in the cyber insurance market, where both Zurich and Beazley are significant.
“We expect Zurich will also be able to unlock some cost and capital synergies from the transaction, while accessing third-party capital through Beazley’s presence in the Lloyd’s of London insurance market,” Moody’s explained.
It continued: “However, such large acquisitions are inherently risky due to the difficulties of integrating disparate underwriting cultures, legacy systems and governance structures.
“As Zurich will be partially funded with cash and debt, the acquisition is also likely to reduce Zurich’s excess capital and regulatory solvency and, at least temporarily, increase its financial leverage. While both Zurich and Beazley have strong track records as specialty insurers, the specialty subsector is particularly vulnerable to large loss claims.”
In related news, Zurich is preparing to launch a syndicate in the specialist Lloyd’s insurance and reinsurance market as it awaits a response on its latest proposal to acquire London-based Beazley, CEO Mario Greco told the Financial Times earlier today.
Reinsurance News understands Lloyds will offer Zurich another route into the Lloyd’s market if its latest bid for Beazley is rejected.
However, the insurance company did not confirm whether it would proceed with the syndication if the bid is successful.