Wellington makes pounds 35m landmark Lloyd's purchase

Wellington Underwriting, one of the largest Lloyd's of London underwriting agents, announced a landmark deal yesterday when it bought Premium Underwriting, one of the first new-style corporate vehicles to be authorised by the insurance market, for pounds 34.9m.

While consolidation among Lloyd's underwriters has been going on for many months, this is the first time one of the original corporate "names" has been snapped up.

Corporate vehicles such as Premium differ from traditional investors in the Lloyd's insurance market because their liabilities are limited and the risks are spread across a variety of syndicates.

"As one of the major agencies we're buying one of the investment trusts. That hasn't been done before," said Julian Avery, managing director of Wellington.

The two groups announced they were in talks last month and the offer upon which they have agreed represents a 37.2 per cent premium over the middle market price of Premium's shares on 15 January, the day before the discussions were formally announced.

Under the terms of the deal, Premium shareholders will receive 125 new Wellington shares and pounds 25.20 in cash for every 100 Premium ordinary shares. Holders of 100 Premium convertible shares will receive 118 new Wellington shares and pounds 23.80 in cash.

Mr Avery said the deal made financial sense as it would enhance earnings per share and increase net assets.

"But, most particularly, it will enable us to grow the amount of capacity that we support on our own syndicates in a very effective way," he added.

The conventional way to increase capacity is to raise funds on the market, such as a rights issue. But Mr Avery said this was dilutive as it would take three years for the additional underwriting flows to be accounted for.

By buying an existing operation Wellington would receive underwriting returns from 1994 onwards, Mr Avery said. He thought other deals may follow this one.

Wellington is managing agent for more than pounds 600m of capacity which is spread across several syndicates covering areas such as property, motor and marine and non-marine insurance.

Its capacity has fallen from the extremely profitable years of 1993 and 1994 when it exceeded pounds 750m. Competition has continued to reduce its capacity although Wellington expects its results for 1996 to benefit from the lower incidence of large insurance claims.

Premium underwrites through seven underwriting subsidiaries which are all corporate members at Lloyd's.

Archibald Walker, chairman of Premium, said: "The offers from Wellington give our shareholders both a very satisfactory return on their investment and the opportunity to participate for the future in one of the leading specialist Lloyd's insurance groups."