Brit Insurance gives backing to £888m private equity buyout

The independent directors of the Lloyd's of London insurer have recommended that shareholders accept the offer of between 10.75 and 11 per share from private equity firms Apollo and CVC Capital Partners.

The offer values the shares at up to 51 per cent more than the closing price of 7.29 on June 10 – the last day before an official offer period for bids started.

The offer, made by a new company, Achilles, formed by the two private equity players, was announced as the company said its premiums were down 8.5 per cent to 1.2bn in the year to date after it decided to concentrate on higher margin business rather than sales volumes.

Brit specialises in property and casualty insurance and became the England cricket team sponsor in January to boost its profile. The firm has also sponsored county cricket club Surrey since 2004 and lends its name to the club's Oval ground in south London.

The company distributes insurance and re-insurance worldwide through brokers, while it also operates in the Lloyd's of London insurance market and as an insurer to small and medium-sized businesses.

The firm grew profits by 31 per cent last year, although it has suffered a 46m bill from February's earthquake in Chile.

Lloyd's of London insurers, which offer cover against large-scale risks such as natural disasters, have emerged as potential takeover targets because cyclically low insurance prices have weighed heavily on their shares.

Brit's chief executive Dane Douetil said conditions were now ripe within the sector for consolidation, given upcoming solvency regulation requirements, which may create capital issues for the smaller players. Short-term volatility could also affect results.

Mr Douetil said consolidation in the sector was more likely in the next 12 to 24 months than it had been in the last five years.

Earlier this month, insurer Hardy rebuffed an initial 300p per share approach from peer Beazley.

Mr Douetil said the deal represented a good price for shareholders.

"It will allow us to build the business at the right part of the cycle, to be more nimble in what we do and to have a longer term perspective," said Mr Douetil.

Brit Insurance entered the FTSE 250 Index in 2002, and the following year, gross written premiums exceeded 1bn.

In 2003, it acquired PRI Group which provided it with an extra 120m of capital.

In 2004, the company's underwriting operations were reorganised into three centres: global markets, reinsurance and the UK.

A network of regional offices was opened in the UK, which includes a base in Leeds.

In 2005, Mr Douetil was appointed group chief executive.

Last year, Brit Insurance Services USA was opened in Chicago, to underwrite on behalf of the group's Lloyd's Syndicate.

The company also opened an office in Tokyo, to enhance the profile of Brit Reinsurance and its business activities in Japan.

Brit Insurance Holdings became the new holding company of the group. The company is incorporated in the Netherlands, and listed in the UK.

In 2010 it opened a representative office in Sydney, Australia, to provide local services, initially for the group's reinsurance activities.

Apart from its cricket sponsorship – which includes the England men's and women's teams – Brit also supports the arts. In 2008 Brit entered a four-year partnership with the Design Museum, in London, which involves title sponsorship of the Brit Insurance Design Awards and a supporting exhibition, the Brit Insurance Designs of the Year.

In the hands of major players

Apollo and CVC Capital Partners are among the biggest names in global private equity.

Apollo, which has been in business for 20 years, focuses its investments in areas where it can capitalise on what it describes as its "library of industry knowledge".

Founded in 1981, CVC Capital Partners is a global private equity and investment advisory firm, which is based in Luxembourg. It has a network of 20 offices across Europe, Asia and the US.

CVC focuses on building businesses for the long term, typically holding investments for five years or more.

CVC's investors receive distributions from the gains made on the company's investments. Brit Insurance has 740 staff across the UK, including 12 in Leeds.

A spokesman for Brit Insurance said Achilles, the new company formed by the two private equity buyers, attached "huge value" to the skills and experience of Brit Insurance's existing staff.