Reinsurance Brokerage Leader Aon to Acquire Benfield

LONDON, Aug 22, 2008 (A. M. Best via COMTEX) -- BFLDF | Quote | Chart | News | PowerRating -- Aon Corp. plans to acquire London-based reinsurance broker Benfield Group Ltd. in a 935 million pound (1.17 billion euro) deal that would create a ?premier reinsurance franchise with [a] global reach,? according to Aon.

Aon will pay 3.50 pounds in cash for each share of Benfield. It will also assume 91 million pounds of Benfield net debt.

The acquisition was approved unanimously by the boards of directors of both companies, Aon said. The price converts into a premium of 29% above Benfield?s Aug. 21 closing price of 271 pence (3.39 euros). Benfield?s price had shot up 29.9% by the morning of Aug. 22, reaching 352.25 pence.

Benfield (LSE: BFD) is to become part of Aon Re Global and to be known as Aon Benfield Re.

Grahame Chilton, Benfield?s chief executive officer, will become vice chairman of Aon Group. He will report to Greg Case, CEO of Aon Corp.

Michael O?Halleran, who is executive chairman of Aon Re Global, will become executive chairman of Aon Benfield Re. Andrew Appel, CEO of Aon Re Global, will become CEO of Aon Benfield Re and will remain as chairman of Aon Consulting Worldwide.

Aon (NYSE: AOC | Quote | Chart | News | PowerRating) is currently the top insurance broker in the world, with 2007 brokerage revenue of $6.1 billion (4.1 billion euros), according to Best's Review's annual broker rankings. Its Aon Global Re unit is the top reinsurance broker worldwide, with 2007 brokerage revenue of $958 million. Best's Review ranks Benfield as the world's third-largest reinsurance broker, with 2007 brokerage revenue of $656.7 million.

Aon spokesman David Prosperi said in a telephone interview from Chicago that Benfield has ?a very strong reputation and standing in the business. They?re known for excellent client service. They?ve got a tremendous analytics capability. And they?ve got a pretty good track record of innovation.?

The acquisition, which will require both regulatory and Benfield shareholder approval, is expected to be completed by the end of this year, Aon said. Aon said it has received the assent of the owners of 25.4% of Benfield?s outstanding shares.

Prosperi said Aon does not expect any monopoly issues to arise from the acquisition. He said the company has been in contact with the U.K. Financial Services Authority and the U.S. Department of Justice. ?And we expect to be able to answer all their questions to their satisfaction,? he said.

Aon said it will use available cash to pay for the deal will not rely on ?a financing contingency.?

Aon expects the acquisition to generate about 65 million pounds in phased-in annual cost savings, taking full effect in 2011. This will be achieved, Aon said, by sharing administrative and support functions.

Aon described Benfield?s reinsurance capabilities as ?highly complementary? to its own. Benfield, Aon said, has strengths in such areas as global market development, analytics and technology, operational efficiencies and cash flows.

Internationally, both groups are seeking growth in such territories as Asia, Eastern and Central Europe, Latin America and Africa. Aon said. Aon cited Benfield?s strength in Japan.

Prosperi said Aon views reinsurance as ?a market of opportunity for us.? Asked about a possible drift by some reinsurance customers into the higher levels of retention and toward the capital markets, Prosperi said: ?We?re looking at this as a long-term transaction. Everybody is talking about a soft market, but we don?t look at things on a quarter-by-quarter basis.?

Benfield, Aon said, has ?client-facing technology? that has enabled it to establish a distinctive space in the market. Aon pointed to the use of Benfield?s ReMetrics in the property-catastrophe sector in Florida and the Southeastern United States.

Aon plans to continue with its share buyback program, which had reached $3.7 billion in repurchases as of Aug. 7, 2008. The initiative, which is to continue until the end of 2009, is due to make about $900 million more in purchases.

Benfield also brings important major accounts, Aon said. ?On a pro forma basis, Aon Benfield Re will serve the majority of insurance and reinsurance carriers globally,? Aon said.

Greg Case, Aon?s president and chief executive officer, said Benfield shares Aon?s ?focus on excellence in client service,? and its determination to attract talent.

?This agreement reflects our ongoing efforts to ensure that Aon?s colleagues, capabilities and technology remain at the forefront of our industry and that we provide the best value for our clients,? Case said in a statement. ?Over the past several years, we have made significant progress in strengthening Aon?s operational platform and global network, becoming a more client-focused organization with a broader portfolio of innovative products and services.?

Chilton said the deal provides Benfield?s shareholders with ?fair and certain value.?

?We are excited by this unique opportunity to create a powerful global franchise capable of expanding and redefining innovative reinsurance and capital market solutions,? Chilton said in a statement.

O?Halleran expressed his ?significant respect and admiration? for Benfield and said he looked forward to working to combine the strengths of the two groups.

Prosperi would not be drawn on possible job losses. ?It?s premature to speculate on whether there?s going to be any activity on jobs,? he said.

(By Robert O'Connor, London editor: Robert.OConnor@ambest.com)

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