RenaissanceRe Holdings Ltd is to acquire fellow Bermuda reinsurer Platinum Underwriters Holdings, Ltd in a $1.9 billion cash-and-stock deal, the companies announced yesterday.

The deal is expected to close in the first half of next year. RenRe’s senior management team, led by chief executive officer Kevin O’Donnell, will remain in place after the merger and RenRe’s 11-strong board of directors will oversee the combined company.

Mr O’Donnell told The Royal Gazette that the combination would result in a stronger company with a larger footprint in Bermuda and that RenRe continued to regard the Island as “the best place in the world to headquarter a company like ours”.

RenRe was founded in Bermuda in 1993, one of a clutch of start-ups to launch on the Island in the wake of Hurricane Andrew. It has developed a reputation as a leader in hi-tech risk modelling and as a pioneer in establishing structures that allow the company to utilise third-party capital.

All Bermuda operations of the combined company will be run out of RenRe’s current headquarters on Crow Lane.

Of Platinum’s global workforce of 123, the company has 37 employees in Bermuda, based at the company’s offices in Waterloo House, Pembroke. There was no definitive statement on their post-merger future yesterday.

However, in a conference call yesterday, RenRe executives revealed that Platinum CEO Michael Price would not be retained by the combined company and their comments also implied that some jobs, particularly in administrative areas, would go.

RenRe expects to achieve annual run-rate expense savings of $30 million, after incurring an implementation cost of $30 million in connection with the transaction.

Chief financial officer Jeffrey Kelly told analysts in yesterday’s conference call that the dominant part of the one-time cost would be “compensation-related”, including severance costs.

“And in terms of expense saves, similarly, we anticipate some expense saves from facilities and reduced infrastructure, and there will be some cost saves that relate to implicative positions around the company,” Mr Kelly said. “And in particular, those tend to be most heavily focused in areas in effectively running a public company.”

According to the investor presentation on the merger, RenRe currently has 285 employees around the world, 135 of whom are based in Bermuda. It also has a significant presence in the Lloyd’s of London market, writing business backed by RenaissanceRe Syndicate 1458.

“We are excited by this acquisition, which will advance our strategy in a number of positive ways,” Mr O’Donnell told this newspaper.

“The transaction is expected to close in the first half of 2015, after which time RenaissanceRe will be a larger, stronger company.

“Our own footprint on the Island, where we were founded more than two decades ago, will increase. It has always been RenaissanceRe’s vision to operate as a permanent franchise, and we remain committed to and appreciative of our flagship home in Bermuda.

“We believe Bermuda remains the best place in the world to headquarter a company like ours and this development will enhance our stability here even further.”

Under the terms of the deal, Platinum’s common shareholders will receive $76 per common share in stock and cash, or approximately $1.9 billion.

The aggregate consideration for the transaction will consist of 7.5 million RenaissanceRe common shares, valued at approximately $761 million, and $1.16 billion of cash. The cash consideration will be funded through a $10 per share pre-closing dividend from Platinum, RenaissanceRe available funds and the proceeds from the issuance of new senior debt.

Two analysts yesterday put out notes suggesting that RenRe had negotiated a good deal and that rival bids were likely.

“We view the deal multiple as low at 1.1x book value, and combined with the fact that it was a privately negotiated deal and the break-up fee is not unreasonable at $60 million, we believe there is the potential for a competing bid to emerge in coming weeks,” JMP Securities analyst Matt Carletti said.

Macquarie’s Amit Kumar added: “We would be surprised if no other potential buyers emerge to outpace RNR’s offer.”

One of the major benefits for RenRe from the deal will be the increasing of its presence in the US. Currently, RenRe has eight employees in the US, while Platinum has 86, based in New York, Chicago and Stamford, Connecticut. The CEO of Platinum’s US operations, Elizabeth Mitchell, has agreed to stay on with the combined company.

In a statement, Mr O’Donnell said of Platinum: “It is a well-run company and its integration with RenaissanceRe will benefit our combined companies’ clients through an expanded product offering and broker relationships. It will also accelerate the growth of our US specialty and casualty reinsurance platform and as a result, create enhanced value for our shareholders.

“Platinum is a company we know well as we supported its formation and initial public offering in 2002. Platinum’s disciplined approach to underwriting and risk management is a strategic and cultural fit for RenaissanceRe and its book of business will be integrated within our risk management framework.”

For the 12 months ended September 30, 2014, the two companies had pro forma gross premiums written of $2 billion. Shareholders’ equity will increase from $3.7 billion to $4.5 billion and total cash and invested assets will increase from $7 billion to $9.4 billion on a pro forma basis.

Many experts have been predicting more consolidation in the reinsurance sector, as earnings have been squeezed by competition from an influx of third-party capital driving down rates and a prolonged period of low interest rates crimping investment returns.