Lloyd's insurer Brit (BRIT), which only relisted on the London market in March 2014, could be leaving again. Management has recommended a cash offer of 305p from Canadian property insurer Fairfax Financial, which represents a tidy premium to Brit's share price before the bid.
Consolidation is a growing trend among insurers, which face a global backdrop of widespread economic uncertainty, capricious monetary policies and geopolitical tensions. XL Group recently swooped on Catlin, while smaller insurers Novae and Lancashire remain viable takeover targets. For Fairfax, a successful deal would significantly strengthen its presence in Europe and give it a top-five position at Lloyd's. And it would deepen Brit's foothold in its key US market.
Brit seems to be doing fine on its own. Strip out currency effects and the speciality insurer and reinsurer - which boasts about £2.5bn in investment assets - posted a 12 per cent rise in gross written premiums in the nine months to end-September. The upshot was that its investment return soared about 140 per cent to £69m. Brit's gains stemmed from the continued expansion of BGSU, its Chicago-based US service platform, which posted a 74 per cent rise in written premiums to £72m. That was supplemented by about £13m from Brit's new aviation team and £8m from its political and credit risk team.
But Brit did suffer a 5.3 per cent slump in gross written premiums from its speciality reinsurance business. Challenging market conditions weighed on its property treaty book, which focuses on catastrophe and risk insurance. Brit also took a hit from the attack on Tripoli airport in Libya and Hurricane Odile. A tough rating environment didn't help: adjusted premium rates fell by an average of 3 per cent across Brit's portfolio, driven by an 11 per cent reduction in property treaty.
Brit continues to diversify and expand its business. Last year it bolstered its speciality business portfolio with new aviation and UK property teams in London, and added a reinsurance team in Miami to cater to the city's large Latin American population. It also closed out a reinsurance portfolio that harks back to the financial crisis and the group's restructuring in 2012.
Broker Westhouse previously flagged Brit as a likely takeover target because nearly three-quarters of its shares are held by private equity groups. It forecasts full-year pre-tax profit of £108m, giving EPS of 24.4p.
