Third Point Re, the reinsurer founded by billionaire hedge fund manager Daniel Loeb, has agreed to combine with Swedish rival Sirius in a $3.3bn deal that seeks to mitigate capital risks amid a potential wave of claims due to the fallout of the coronavirus pandemic.
As part of the cash-and-stock transaction, Mr Loeb, who is Third Point Re’s largest individual shareholder, has agreed to buy $50m worth of shares in the combined entity when the deal closes.
“This transaction fulfils our vision to move Third Point Re up the quality curve by adding diversified insurance lines to our existing business,” Mr Loeb said. He added that the deal would help boost returns on capital and would help create “critical mass to support both internal growth and future acquisitions”.
The tie-up could be the first of many in the sector, as insurance executives and dealmakers expect coronavirus to further expedite dealmaking plans to sell non-core business units or buy assets to gain scale.
“The pandemic is intensifying the spotlight on the same structural weaknesses in the insurance sector that have driven consolidation and other M&A activity in recent years,” said David Lambert, who heads EY’s global insurance transactions unit.
Third Point Re will use a combination of cash, equity and debt, if necessary, to finance the transaction. Siddhartha Sankaran, who has recently been named as non-executive chairman to Third Point Re’s board, will lead the new group, which will be renamed SiriusPoint.
Mr Sankaran was previously the chief financial officer and chief risk officer at the US insurance company AIG. Kip Oberting, Sirius’s chief executive, will step down from his role.
Shareholders in Sirius will have several options they can exercise, including the ability to receive $9.50 per share or 0.743 of Third Point Re shares and a contingent value right which in two years will guarantee them equity and cash at a minimum of $13.73 per share.
China Minsheng Investment Group, which is Sirius’s majority shareholder, has opted for a third option. The Shanghai-based investment group will receive $100m in cash and approximately 58m Third Point Re shares as well as a portion of series A preference shares, warrants and other securities.
As part of the agreement, Third Point Re shareholders will be protected from up to $100m of net incremental Covid-19 related losses at Sirius that are incurred, in certain cases, for up to three years following the closing of the deal.