A winning combination
Third Point’s CEO Dan Malloy talks with Reactions about the planned deal with Sirius.
By Marc Jones, Associate Editor
2020 has been dominated by the COVID-19 pandemic. However, there was another major story for the year: the Third Point Re/Sirius deal. In August the two announced a definitive agreement for Third Point Re and Sirius Group to merge in a cash-and-stock transaction, forming a company with around $3.3bn of tangible capital renamed SiriusPoint.
Third Point Re will offer Sirius Group shareholders $9.50 in cash per share, a premium of 36% per share on Sirius’ closing share price on 8 July, valuing the deal at $788m. Sirius shareholders can alternatively opt for Third Point Re equity or other securities.
Third Point Re will finance the transaction through a combination of cash-on-hand; Third Point Re equity issued to Sirius Group shareholders; Third Point Re equity issued to Daniel Loeb, CEO and Chief Investment Officer of Third Point LLC, and currently Third Point Re's largest individual shareholder, pursuant to an agreement to purchase approximately $50m worth of SiriusPoint shares at closing; and if necessary, other debt or equity financing.
Third Point Re's current CEO, Dan Malloy, will remain a senior underwriting executive of SiriusPoint following the closing.
Speaking about the deal between Third Point Re and Sirius, Malloy said that the timing was "interesting" because there had already been connections between the two companies – Third Point Re has board members who used to work at Sirius.
“In the early 80s I remember as a young broker sharing business with Warren Trace [of Sirius]. The company has a remarkably consistent underwriting team, that have worked through many market cycles, changes within the company and evolution into what they are today. Because of that, they have always taken change in their stride. They have a resiliency and a focus on customers that shines through.”
Sirius has recently experienced ownership challenges, pressures from rating agencies and, by their own admission, lost focus on underwriting. This was exposed by the losses posted from 2017, 2018 and 2019. Malloy explained that problems faced by Sirius were exacerbated by the challenges caused by a soft market.
“So, they needed a solution. I think that the whole team at Sirius has done a great job in keeping their business franchise intact while management was looking for an answer.”
Malloy said that the solution of coming together worked equally well for Third Point Re. Clients and brokers agree, he added, as the newly announced venture has been welcomed by the market.
“It’s been two and-a-half years since I was standing in a parking lot outside AM Best with the rest of the management team having just heard from the rating agency that they wanted to see an evolution from the hedge fund model to a profitable underwriter with a balanced investment strategy. From that moment we started our journey to become a specialty reinsurer.
“So, there we were, looking to leave behind the ‘hedge fund re’ model, and this opportunity presented itself. This transaction solves overhangs for both of companies. Sirius had its ownership challenges and was not able to access capital markets. For Third Point Re the prospect of a larger capital base and an improved rating was key. After the merger announcement AM Best said that the deal expands, and in fact dramatically increases, our business profile and our relevancy in the market.”
When asked if the new company would be the first of the ‘Class of 2020’ in Bermuda, he said it was too soon to say. He said it was difficult now for the so-called Class of 2020 with the ongoing challenges of dealing with COVID-19. Another hurdle was being unable to talk to new customers face to face.
He did add, however, that SiriusPoint would be in a good position and better placed to take advantage of a hardening market at renewals as it already had an established client base and offices and staff in place in locations around the world.
