INSURER Lancashire Holdings is to belatedly join the Lloyd’s of London marketplace after buying underwriter Cathedral Capital for £266m, it was announced yesterday.
The FTSE 250 insurer, which specialises in heavy-duty lines such as oil rigs, property and shipping, has resolutely ignored the London market since it was founded in 2005 but has decided to act in the face of tight competition driving down margins.
“That screech of brakes heard down near the Lloyd’s building was Lancashire undertaking a series of U-turns… an acquisition, a share placing and an entry to the Lloyd’s market,” said Eamonn Flanagan, an analyst with Shore Capital.
Half the cost of the deal will come from Lancashire’s cash reserves, with the other half raised in a share placing.
Richard Brindle, Lancashire’s chief executive, said the proposed takeover followed a period of internal discussions “about how important it is to remain relevant in such a rapidly changing marketplace”.
Cathedral Capital is currently owned by a combination of its management and private equity outfit Alchemy Partners. The deal represents a healthy payday for the pair, who bought the company for £113m back in 2006.
Lancashire hopes the combined entity will allow it to write a more diverse range of business and improve its capital controls in the face of reduced investment returns.
The structure of the wider Lloyd’s institution, which is looking for a new chief executive, faces a number of challenges to ensure it remains an attractive place to write business from around the world. Last week Brit Insurance boss Mark Clothier said the market must work harder to reduce the cost of writing some lines.