Lloyd's insurer Novae eyes £420m Omega merger

Lloyd's of London insurer Novae is examining a merger with rival Omega, in a deal which could create an enlarged group with a combined market capitalisation of some £420m.

"In accordance with the group's publicly stated strategy, Novae routinely reviews possible transactions and confirms that it is currently undertaking due diligence in evaluating the merits of proposing a possible merger with Omega," Novae said in a statement Tuesday.

Novae added there was no certainty it would make an offer for Omega. An Omega spokeswoman said Omega had no comment to make on Novae's proposal.

Omega's shares rose 1.9 per cent to 75.5 pence in early morning trade, to give Omega a market capitalisation of around 180 million pounds. Novae shares last traded at 369 pence, giving Novae a market value of around 240 million pounds.

Takeover activity has picked up in the Lloyd's of London insurance market in recent months, as companies grapple with losses from a wave of natural catastrophes, the latest being the earthquake and subsequent tsunami that hit Japan in March.

In January Omega received a bid approach from privately owned rival Canopius and it then received further bid approaches from other parties, whom it declined to identify.

The bid interest in Omega comes after a planned takeover of Lloyd's underwriter Chaucer by U.S. rival Hanover Insurance, while Beazley has said it remains on the lookout for takeover targets after it failed to buy rival Hardy last year.

Numis Securities analyst Nick Johnson said there were certain advantages in Novae merging with Omega.

"Novae's got a strong operating platform which could support Omega, and Omega's Bermuda business could provide a natural growth channel for Novae's business which is more Europe-based," he said.