Alleghany and Transatlantic Close Merger

Alleghany Corp. and Transatlantic Holdings Inc. have closed on their $3.43 billion merger.

Transatlantic is now an operating subsidiary of Alleghany, and is expected to increase Alleghany’s breadth of distribution, diversify its underwriting activities and add to its financial strength and flexibility, the company said.

Joseph P. Brandon, former chief executive officer of Berkshire Hathaway'sGeneral Re Corp., has been tapped to serve as president of Alleghany Insurance Holdings LLC, executive vice president of Alleghany, AIHL's parent company, and chairman of Transatlantic's board. Transatlantic President and CEO Michael C. Sapnar will continue to serve in his current capacity.

The Alleghany board has been expanded to include former Transatlantic directors Stephen P. Bradley, Ian H. Chippendale and John G. Foos.

In February, Sapnar said the merger with Alleghany was "the best possible outcome" of the multiple offers the company sorted through in the past year (Best's News Service, Feb. 9, 2012).

"It was a long and painful process," Sapnar said of the five acquisition bids, which included a failed friendly acquisition attempt with Allied World Assurance Co. and a failed hostile takeover bid from Validus Holdings.

Alleghany’s specialty insurance platform and Transatlantic’s reinsurance platform, combined with a shared philosophy of underwriting discipline, will bring greater diversification of earnings, cash flow sources and business by geography, product and distribution to Alleghany, A.M. Best Co. said (Best's News Service, Feb. 6, 2012).

Included in Alleghany's business is RSUI Group, which Sapnar described as a "premier" excess and surplus lines company. RSUI posted an impressive five-year average combined ratio of 73.3, compared with an industry composite five-year average combined ratio of 89.3, according to BestLink. The company wrote $905.2 million in direct written premiums at year-end 2010.

Before the Alleghany transaction was announced, Transatlantic had been the acquisition target of five would-be buyers. Public offers ranged from about $3.12 billion to $3.5 billion in stocks and cash and an all-cash offer of $3.25 billion.

After Transatlantic and Alleghany announced their merger plans, Validus formally ended its hostile takeover attempt.

On Nov. 23, A.M. Best Co. said the Best's Financial Strength Ratings of Alleghany Corp. and Transatlantic Holdings were unchanged following their merger announcement. Most of both companies' insurance subsidiaries currently have Best's Financial Strength Ratings of A (Excellent).

On Feb. 27, A.M. Best Co. affirmed the Best's Financial Strength Rating of A (Excellent) for Transatlantic and its members (Best's News Service, Feb. 27, 2012).

Under terms of the agreement, Transatlantic common shares will be exchanged for per-share consideration consisting of 0.145 Alleghany common shares and $14.22 in cash.

Shares of Alleghany Corp. (NYSE: Y) were trading at $322.30 on the afternoon of March 6, down 0.91% from the previous close.

(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com)