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Catastrophe losses could derail Aspen buyout

Thanking employees: Aspen CEO Chris O'Kane

Apollo’s proposed takeover of Aspen Insurance Holdings could be derailed in the event of major catastrophe losses in the coming months.

The Bermudian insurer and reinsurer agreed a $2.6 billion deal to be acquired by funds owned by US private-equity firm Apollo.

A regulatory filing shows the agreement gives Apollo the right to terminate the deal if Aspen suffers losses of more than $350 million from catastrophes occurring between July 1, 2018 and January 31, 2019.

In the last six months of 2017, Aspen posted catastrophe losses of $438.7 million, in a heavy year of losses for the industry.

Also, if the deal fails to happen because the Aspen board accepts another offer, the insurer will have to pay Highlands Holdings, Apollo’s subsidiary, a termination fee of $82.9 million.

If Highlands Holdings fails to live up to its obligations, then it would have to pay a $165.9 million reverse termination fee to Aspen.

Aspen’s board opted to take the Apollo offer after a lengthy strategic review of future options, following a rocky period for financial results.

On Tuesday, after the deal was announced, Chris O’Kane, Aspen’s chief executive officer, gave an update to all staff.

He said: “I know that the media speculation over the past several months about our future path has not been easy. I want to thank all of you for your professionalism and focus. The outcome we are announcing today was well worth the wait.

“Apollo has a successful track record in the insurance and reinsurance industries. This transaction will provide us with additional scale, and access to Apollo’s investment and strategic guidance, which will help us to accelerate our strategy.

“In our discussions with Apollo, they have indicated support for our overall strategy, with the intention to help enhance our underwriting profitability.”

Yesterday AM Best put Aspen’s credit ratings under review with developing implications.

In a statement, the ratings agency said it needs to assess the impact of the planned change in ownership on Aspen’s balance sheet strength, operating performance and business profile. “AM Best will conduct detailed discussions with Aspen regarding its planned strategy as a privately held portfolio company of the Apollo Funds,” Best stated. “AM Best expects the ratings to remain under review pending the completion of the transaction.”

Aspen’s operating subsidiaries have a financial strength rating of A (excellent) from AM Best.