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Markel to buy Alterra and redomicile company to US

US insurer Markel Corp’s proposed $3 billion acquisition of Bermuda-based Alterra will not see the specialty insurer moving to Bermuda, but rather Alterra re-domiciling to the US.

However, Markel intends to maintain a “very significant presence” on the Island.

Markel announced yesterday that it would buy Alterra for about $3 billion in cash and stock to diversify into reinsurance.

Alterra CEO Marty Becker is expected to leave the company after the merger is completed.

During an investor call yesterday afternoon, Markel vice-chairman Steve Markel said that Alterra will move its domicile to the US rather than Markel moving its holding company offshore.

Mr Markel said that it would be impossible for Markel to merge into Bermuda and retain any sort of tax benefit.

“The hoops and mechanics just are so impractical, and it’s not of interest to us. The more important thing is sustaining the philosophy of building shareholder value over the long haul. And that’s what this is all about,” Mr Markel said. “Alterra has enjoyed tax benefits in the past and they will be less in the future.”

Markel’s offer of $31 per share represents a premium of 34 percent to Alterra’s closing stock price of $23.15 on Tuesday. Shares of Markel fell ten percent ($49.81) to $436.24 while Alterra shares ended the day up 21.73 percent ($5.03) at $28.18.

Each Alterra common share will be converted into a right to receive 0.04315 Markel common shares plus cash payment of $10.

Mr Becker and Mr Markel say they anticipate “having a very robust underwriting operation in Bermuda”.

“If you look at the other companies that have re-domiciled from Bermuda, whether it’s ACE, or XL, or Allied World, the significant underwriting presence, which has remained in Bermuda is quite extensive and we would expect a similar treatment out of this transaction,” Mr Becker said.

Alterra employed around 120 staff in Bermuda at the time of its formation in 2010 through the merger of Max Capital and Harbor Point Re.

“We believe that Bermuda’s an important insurance centre and will always continue to be one,” Mr Markel said. “For Markel, of course, it will be less important as a corporate home office because of the re-domicile of that operation to the US.

“But I think Bermuda will always be a place and a marketplace for the insurance industry and we will always continue to maintain a very, very significant presence with underwriting expertise in Bermuda to respond to clients’ needs.

“I think the acquisition does create a lot of flexibility for especially the US clients who are doing business there and creates a flexibility to allow our underwriters in Bermuda to actually visit their clients in the United States which was sort of out of the scope of what was permitted to try and maintain the tax-free nature that Alterra had to keep.

“We’re making this more efficient, more effective and this could be good for everybody. Doing business in Bermuda is also expensive in some respects.

“There are a number of great people in Bermuda who we hope will stay with Markel and serve our customers and clients, there also are a lot of expats in Bermuda who will be able to resettle in the United States closer to their homes and their families and so that’ll be a good thing as well.”

Both companies say the merger is “highly complimentary” with limited overlap. Alterra offers direct property and casualty insurance to US and international Fortune 1000 companies as well as property and casualty reinsurance — neither of which Markel writes.

“One of the really strong points of Alterra is that they have consistently had very very strong risk management in the cat area,” Mr Markel said.

“They have their property cat systems of recording their exposures very efficiently and effectively and they have an extremely good process to manage their catastrophe exposure. If you look back over time at Alterra’s track record, relative to other Bermuda companies, these guys have well outperformed their peers in the exposures that they’ve taken on.”

Markel has been venturing into sectors other than specialty insurance in recent years, mirroring Warren Buffett’s Berkshire Hathaway.

Adding two meaningful new segments to the company’s portfolio and rebranding as Markel will allow the firm to get into the global reinsurance and large account insurance business while expanding the reach of Alterra, which has a somewhat less global reach than other Bermuda-based insurers and reinsurers.

After the transaction, Markel, based in Glen Allen, Virginia, is expected to have an estimated $6 billion in equity and write more than $4 billion of premium, half of which will be short-tail and the other half long-tail. Sixty-seven percent will be insurance and the other 33 percent reinsurance. Approximately 29 percent will be property, 23 percent professional liability, 22 percent general casualty, 19 percent in other specialty lines and six percent in workers’ compensation.

Alterra CEO Marty Becker, a veteran of the Bermuda insurance market, said the merger “creates an incredibly strong company” in the global specialty insurance and investment marketplace.

He too believes a track record of underwriting discipline in niche market segments by both organisations, along with Markel’s proven asset management strengths, should bode very well for all stakeholders. He says he believe this creates an advantage for Alterra’s shareholders to have their investment in a more diversified specialty insurance company.

“The increased size and scale of the balance sheet will enhance the competitiveness of our reinsurance and large account insurance businesses and enhance our ability to capitalise on global opportunities,” Mr Becker said.

“Markel has a long history of producing superior results and consistent, sustained value creation for its shareholders with a 20-year compound annual growth and book value of 17 percent. I don’t know of many companies that can match the excellent returns that Markel has demonstrated over such a long period of time.”

Mr Becker said he is “confident that Alterra’s clients and other business partners will continue to be well-served” when Alterra’s underwriting operations join forces with Markel’s and will benefit from “the superior financial strength and expanded capabilities of this combined entity”.

Both companies expect the deal to close in the second quarter of next year.

Alterra CEO Marty Becker: Expected to leave after the company is acquired by Markel

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Published December 20, 2012 at 8:00 am (Updated December 20, 2012 at 8:37 am)

Markel to buy Alterra and redomicile company to US

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