Cincinnati Financial to Acquire London Specialty Underwriter from Munich Re

In a bid to diversify its earnings and expand its markets beyond the U.S., Cincinnati Financial Corp. has agreed to acquire MSP Underwriting Limited, a London-based global specialty underwriter and subsidiary of Munich Re.

The proposed all-cash transaction is for £102 million ($134 million), based on MSP Underwriting’s projected net asset value at closing.

“Adding MSP Underwriting to the Cincinnati family brings experienced underwriters who we believe will open opportunities for us to support our agents in new geographies and lines of business,” said Steven J. Johnston, Cincinnati president and chief executive officer.

Johnston said the deal complements his firm’s existing large commercial account, excess and surplus lines, high net worth personal lines and reinsurance growth initiatives.

“MSP’s size allows us to follow our proven strategy of building successful insurance businesses over time – just as we have with our excess and surplus lines subsidiary and our reinsurance assumed business,” Johnston added.

As a wholly owned subsidiary of Cincinnati Financial, MSP Underwriting will continue to operate under its own brand and with its existing leadership team. Underwriting will continue to be managed by Lloyd’s Syndicate 318.

The transaction has been approved by Cincinnati’s board of directors and is expected to close in the first quarter of 2019.

Based in London, MSP Underwriting operates through Beaufort Underwriting Agency Limited, which underwrites for Lloyd’s Syndicate 318. MSP’s 2017 net written premiums totaled $162 million, with a mix of 62 percent property (direct & facultative) focused on global medium-to-large commercial risks; 31 percent property (binder) focused on North American commercial property and homeowners; and 7 percent aviation, mostly smaller airlines and some general aviation, generally non-U.S. risks.

MSP Underwriting has earned an underwriting profit in 20 out of the last 24 years. Cincinnati expects this trend to continue and projects the MSP combined ratio for the next five years to average 90 to 95.

MSP’s future business plans call for targeted expansion into new classes of business.

More than 70 percent of MSP’s business is in the U.S. and Canada.

Cincinnati expects the acquisition to generate an attractive return over time. Based on current assumptions, the company expects the acquisition to be accretive to 2019 net income.

Cincinnati said it sees broad access to a Lloyd’s platform with numerous international licenses providing it with potential to help more accounts requiring specialization

Cincinnati said it also believes its own catastrophe modeling capabilities can enhance MSP’s underwriting.

Peter Röder, member of the board of management of Munich Re, commented that Cincinnati Financial is “perfectly suited for enhancing MSP Underwriting’s business.”

After the sale, Röder said Munich Re will have a “focused and less complex set-up” within the Lloyd’s market, instead of running two platforms in parallel. ‘We remain committed to the Lloyd’s market, and will continue to grow the business within Munich Re Syndicate Ltd.,” he said.

The move by Cincinnati comes a few months after another U.S. insurer, The Hanover Insurance Group, cashed in on a similar venture abroad. In September, The Hanover agreed to sell Chaucer, its Lloyd’s-focused international specialty business, to China Reinsurance Group Corp. for $950 million. The insurer had indicated in March it was considering selling Chaucer. The insurer said the sale of Chaucer will allow it to focus on expanding its domestic business. The sale is still in process. The Hanover acquired Chaucer in 2011 in a $474 million deal.

Fairfield, Ohio-headquartered Cincinnati Financial was founded in 1950 by four independent agents. It offers business, home and auto insurance through The Cincinnati Insurance Co. and its two standard market property/casualty companies in 42 states through about 1,700 independent agents. The Cincinnati Specialty Underwriters Insurance Co. underwrites Cincinnati’s excess and surplus lines business.

Cincinnati Financial also has two financial services subsidiaries. CFC Investment Co. offers leasing and financing services. CSU Producer Resources Inc., a wholly owned excess and surplus lines brokerage, serves the same local independent agencies that sell the insurer’s standard market policies.

The Cincinnati Life Insurance Co. subsidiary markets life and disability income insurance and annuities.

JLT Capital Markets acted as financial advisor and Sidley Austin acted as legal advisor to Cincinnati Financial Corporation. Fenchurch Advisory Partners acted as financial advisor and Norton Rose Fulbright acted as legal advisor to Munich Re.

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