If Montpelier Re’s acquisition by Endurance falls through, the Bermuda-based reinsurer could become vulnerable.
This is according to rating agency Fitch, which placed Montpelier Re on negative watch, following the announcement of its planned acquisition by Endurance for $1.8 billion.
Fitch said the negative watch primarily reflects the existing negative outlook for Montpelier Re’s ratings, reflecting pressures on its competitive market position due to the impact of adverse reinsurance market conditions.
“While Fitch believes an acquisition by Endurance would likely help relieve many of those pressures, in the interim, the agency believes Montpelier Re is potentially more vulnerable should the merger fail to be completed, as the company would likely either seek to find a replacement buyer or look to continue to operate in the challenging reinsurance market environment as an independent entity after signalling to the market a need to merge,” said the rating agency.
Fitch added that if the transaction is completed as planned, it could affirm Montpelier Re’s ratings with a stable outlook.
“Fitch has not maintained a rating on Endurance since December 2013, but expects the post-merger profile of a combined company would likely be stronger than that of Montpelier Re stand alone,” said Fitch.
The rating agency said it viewed the acquisition as an overall credit positive to Montpelier Re, as the purchase by Endurance would likely improve the competitive position of the combined organisation.
“The acquisition by Endurance favourably serves to broaden Montpelier Re’s business profile away from property catastrophe risk, which should help the company to reduce earnings and cash flow exposure to cyclical conditions in the property catastrophe market,” said the rating agency.
Montpelier Re, Endurance, Mergers & Acquisitions, Fitch, Bermuda