Even when he was between jobs 15 months ago, John Charman had a merger between Bermuda re/insurance rivals Endurance Specialty Holdings Ltd and Aspen Insurance Holdings Ltd in his sights.

In an interview with The Royal Gazette, Mr Charman said the two companies appeared to him to be “ripe for a merger” and “extraordinarily complementary”. With the help of some investor friends, he planned to buy both companies, shrink their expense bases, and combine them into a global insurance and reinsurance powerhouse.

Now, nearly a year after he joined Endurance as chairman and chief executive officer, Mr Charman is determined to make that vision of a combined company a reality — even though Aspen’s board of directors is vehemently opposed to it.

Last week, Endurance made public its $47.50-per-share, cash and shares offer to acquire Aspen. Aspen’s board responded with a ‘poison pill’ manoeuvre, the issue of rights to their shareholders allowing them to buy Aspen shares at discounted prices in the event of a takeover, designed to deter Endurance’s advances.

Mr Charman, whose company is working with $50 billion private-equity firm CVC Capital Partners on trying to realise the Aspen deal, is not about to give up. “I want to be clear,” he said. “Both ourselves and our business partners are resolute in achieving our goal.”

He said he was “staggered” by the refusal of Aspen’s board to engage in even exploratory discussions on the value that could be realised for shareholders and suggested that “some companies appear to be run for the benefit of directors and senior management”, rather than shareholders.

Mr Charman reckons the combination would yield cost-saving synergies of $100 million and create a company better capable of meeting client and broker needs than either company is as a stand-alone entity. The world is changing fast and the global re/insurance industry has failed to keep up, he said.

“Our customers, which are large industrial companies, as well as our cedants on the reinsurance side, and the broker distribution network have been saying to me time and again that the insurance and reinsurance industry has aged and is becoming less relevant to what their clients need,” Mr Charman said.

“We’re not big enough, not strong enough and not diverse enough to supply clients with the capacity they need in a modern-day environment. The pressure is coming from our customer base.”

Scale not only helps insurers to underwrite the ever growing risks of today, but also helps them deal with the rising tide of global regulation, Mr Charman said.

“We have to deal with global regulators who are substantially duplicating regulatory oversight and reporting, so much so that you have to be of a certain scale to actually deal with the complexity and cost of regulation on a global scale,” Mr Charman said.

“So there were lots of competing forces that led me to convince the board of Endurance that the company needed to be of between $5 billion and $8 billion of written premium size to not only survive but also to prosper, and to be able to reposition to then grow that business into a major global insurance and reinsurance player. The only person, I think, who’s done that successfully is Evan Greenberg at Ace in recent years.

“Most other companies have floundered, quite frankly, and that’s not what we’re going to do at Endurance.”

Mr Charman saw great possibilities for an Endurance-Aspen combination back in January 2013, because it would produce a strong business mix with little overlap between the two companies, but also great scope for slimming down each company’s “bloated infrastructure”, which generated “expenses far in excess of what the individual sizes of the companies could support”.

Endurance’s chief financial officer Michael McGuire explained that the $100 million cost-saving figure was a conservative estimate.

“When you put the two companies together, the general administrative expense levels are north of $600 million,” Mr McGuire said. “So you don’t have to put big percentage of savings on that size of cost base to achieve very significant dollar values of benefit.”

Mr Charman said the combination was so compelling because the overlap was so slight.

“Aspen are so complementary in every aspect of their operations,” Mr Charman said. “If you look at the combined business mix it’s second only to Ace in the global P&C [property and casualty] market. Nobody else would be able to construct such a high-quality portfolio, capable of delivering strong and consistent returns into the future — that’s why we’re determined to succeed.”

In January this year, Endurance made its first approach to Aspen and its CEO Chris O’Kane. Mr McGuire takes up the story. “We requested a meeting and the response we got was, ‘we decline to meet’. It started with phone calls, then e-mails and then letters. At each stage in the process, we’ve been very deliberate to make sure there was enough time for them to come back to us and engage. And at each step of the way, it was very short correspondence — ‘we decline to meet’, ‘it’s not in our interests’, ‘we’re not interested’.”

Directors and senior managers were there to serve shareholders, Mr Charman said, but “people get carried away into thinking it’s their business”.

“It’s truly inappropriate that in a modern-day environment, boards of directors can receive serious, well intentioned offers that can lead to good shareholder value creation, that these approaches can be rebuffed without any explanation to either shareholders or regulators. I find it unbelievable in a modern-day world.

“There are some companies that appear to be run for the benefit of the board of directors and the senior management and the last thing that’s on their minds are shareholder interests and shareholder returns.

“This industry is far too protected and insular and has allowed this type of behaviour to prevail. It should not be allowed. I can absolutely attest that I would never have followed the course of action that Aspen have followed if I had been in their position.”

He is keen to point out that he has significant ‘skin in the game’, having invested $30 million of his own money in Endurance when he joined the company last year, and having pledged another $25 million investment on the completion of the proposed merger with Aspen. Insider ownership among the Aspen directors and managers was much less substantial, he noted.

So what do the major shareholders think about the offer? Aspen has claimed that there was an “overwhelming consensus” among its shareholders that the company was right to reject Endurance’s $3.2 billion offer. Endurance has claimed that shareholders agree that the deal makes strategic sense and agree that financial benefits would be achieved.

“We have not experienced any discussions with the investment community that would suggest that the transaction does not make strategic sense — in fact, quite the contrary, all the individuals we’ve talked to understand the rationale for the combination; they understand that what we’ve put on the table is a very fulsome valuation for a company that has not traded at those levels in recent times or could be expected to reach in any reasonable time frame going forward,” Mr McGuire said.

“The reaction that we’re hearing is that the strict denials that have come from Aspen are surprising and seen as protectionist.”

In general, he argued, ‘poison pill’ manoeuvres ran counter to best practice in corporate governance, and were seen by investment advisory firms as “management protection plans” and as “tools to deny shareholders an opportunity to benefit from a change to the status quo”.

One interesting dynamic is that the same firms make up the four largest institutional investors in both Aspen and Endurance. Between them, FMR, The Vanguard Group, Dimensional Fund Advisors and Sterling Capital Management Company owned a combined 21 percent stake in Aspen as of the end of 2013, according to regulatory filings, and 27.7 percent of Endurance.

As for what the employment repercussions would be if the two Bermuda companies were to merge, Mr Charman said it was impossible to estimate before doing complete due diligence on Aspen.

“Until we get in and have a look, it’s difficult to say,” Mr Charman said. “We’re viewing it from 10,000 feet at the moment.

“All we know is there is bound to be some duplication — especially at the highest level, where most of the expense is. I have no doubt that anybody below board level, as well as executive management level, all the senior staff at Aspen would welcome a merger with us, because we could give them a very strong and profitable future. The success factor for the combined business is undeniable, as opposed to meandering for the next two or three years, which, quite frankly, they will be consigned to at a stand-alone Aspen.”

Mr Charman hit back at Aspen’s claims that Endurance had poached its employees.

“We don’t poach staff,” he said. “Because we’ve transformed Endurance, a lot of people have wanted to join us, because they see the value creation at Endurance at a time when they see their own companies either stagnating or worse, failing.

“We have taken a number of staff from Aspen, just as we’ve taken a number of staff from many others, including my old company [Axis Capital]. At the end of the day, I’m sure the Aspen underwriting staff will vote with their feet — one way or the other. Certainly their clients and their brokers will do.”

In its statements on the Endurance offer, Aspen has questioned the quality of Endurance’s business mix and its underwriting profitability.

Mr Charman said the company has gone through a radical transformation and was now repositioned, and the benefits of that would become apparent in the coming quarters.

“We were rebalancing our entire underwriting portfolio, which is a major undertaking in such a short period of time,” Mr Charman said. “We’re pretty well through that now.

“The financial results we reported from the middle of last year to the end of the year reflected the transitional nature of our business — it was very blurred, because there were a lot of one-offs, people going out and coming in, signing-on bonuses and redundancy costs. We saved a great deal of money internally when we restructured the company.

“We will show the importance of all the things we did last year when we report our financial results this year. When you go through such a period of change, you’ve got to show that the change was worthwhile and the only way you can do that is through your financial statements. We’re very comfortable with that, regardless of what Aspen are saying.”

Mr Charman has long called for consolidation in an industry in which he believes there are too many companies.

“The world is moving quickly and competition is fierce,” he said. “It’s survival of the fittest. The global insurance and reinsurance business is overpopulated and the law of the jungle is already operating. If Aspen don’t join us, that’s what they’re going to be condemned to.”

Representatives of Aspen, which reports first-quarter results tonight, declined to speak with this newspaper this week.