Investment firm Apollo Global Management can walk away from its agreed $2.6bn acquisition of Bermudian (re)insurer Aspen Insurance Holdings if the Bermudian (re)insurer is downgraded by either AM Best or S&P rating agency before the transaction completes, Aspen’s 8-K filing today confirms.
Another critical material adverse development condition is that Aspen’s net cat losses between 1 July 2018 and 31 January 2019 must not exceed $350mn, according to the 154 page SEC filing today (28 August 2018).
If either party walks away before the deal completes without a trigger event then Aspen must pay a break away fee of $82.935mn while Apollo must pay $165.87mn.
A condition of the transaction is that Aspen’s A (excellent) financial strength rating and S&P A (strong) rating are in place – or higher – as at the closing date.
The filing also reveals that the two companies have negotiated a 31 May 2019 latest date for closure but this can be extended to 31 July 2019.
Aspen’s net cat loss maximum limit of $350mn is substantially lower than its 2017 cat loss bill of $561.9mn which dragged the company to a heavy $266.4mn loss last year, the equivalent of a combined ratio of 125.7 percent.
Since then, the firm has undertaken a major de-risking of its loss exposures which includes cutting back on some gross lines and buying significantly more reinsurance which significantly reduce the prospect of net losses reaching the total even if there was another extraordinary loss year.
In the second quarter of 2017, for example, Aspen ceded $243.4mn to its reinsurers but a year on that had increased sharply to $367.8mn.
It also bought a $125mn adverse development cover to protect against deteriorations on its prior year book.
Aspen and Apollo announced the transaction today after a sale process was begun earlier this year managed by Goldman Sachs and JP Morgan.