DEVASTATING floods sweeping Thailand caused Lloyd’s insurance group Hardy Underwriting far worse than expected losses, eating into its capital and causing the group to put itself up for sale.
Hardy has been hammered by international catastrophes this year and said that the Thai floods would cause it £10m to £25m of losses on top of about £32m from the first half after earthquakes in Japan and New Zealand.
Several potential bidders have expressed interest in buying the business, it said, and the firm has started a strategic review to consider whether to sell or find a strategic partner.
City A.M. understands that Canopius, the unlisted Lloyd’s group that led a bid approach for fellow Lloyd’s insurer Omega, is among the interested parties.
Beazley, another Lloyd’s name, is likely to be interested after it walked away from talks to buy Hardy almost exactly a year ago. Hardy fought a robust defence against Beazley in December 2010 and rejected its twice-sweetened offer of $287m (£184m), demanding a price “substantially in excess” of the 350p per share offer.
Hardy’s shares closed down 3.1 per cent at 180.25p yesterday, valuing the business at about £100m.
Hardy said losses from “unprecedented” international catastrophe events in both 2010 and 2011 “have overshadowed the balance of the portfolio, which is performing very well in a challenging rating environment”.
Collins Stewart analyst Ben Cohen said several of the bidders for Omega, such as US groups Barbican or Delphi, may reappear as suitors for Hardy.
Hardy comes to market at the same time that other Lloyd’s insurers have failed to sell, and Numis analyst Nick Johnson warned he felt that “the probability of a deal materialising is low”.
ADVISERS: ROTHSCHILD AND PEEL HUNT
Rothschild and Peel Hunt jointly share the advisory work on Hardy, with Peel Hunt also acting as its broker.
Leading the Rothschild advisory team is managing director Crispin Wright, who also advises Jardine Matheson the biggest investor in Lloyd’s insurance broker JLT, as well as airport operator BAA and ferry company P&O.
In the past, acting as financial adviser, Wright has fended off takeover bids for both currency printer De La Rue, as Obethur made a £900m bid for the company, and Wolverhampton & Dudley Breweries after they were approached by Pubmaster in 2000.
James Britton, director of corporate finance at Peel Hunt, leads its Hardy advisory team with help from Guy Wiehahn. Britton joined the broker in 2003, when it was part of Belgian group KBC. With 25 years’ corporate finance expertise, he has helped build its M&A and financial services practice. His CV includes stints as a managing director at Deutsche Morgan Grenfell and time at Fox-Pitt, Kelton.