RNS Number:2134M
Kiln PLC
11 June 2003
KILN PLC
#16 million investment in W. R. Berkley Corporation's new FSA regulated casualty
insurer
Further to its announcement of 5 March 2003, Kiln is pleased to announce that it
has entered into an agreement with Berkley London Holdings, Inc. ("Berkley
London"), an indirect wholly owned subsidiary of W. R. Berkley Corporation ("
Berkley"), in respect of an indirect investment ("Investment") in W. R. Berkley
Insurance (Europe), Limited ("WRB Insurance"), a newly incorporated insurance
company. The Investment remains, inter alia, subject to FSA approval of WRB
Insurance.
* It is intended that WRB Insurance will operate as a specialist casualty
insurance provider in the London market, initially focusing on professional
indemnity insurance.
* The initial capitalisation of WRB Insurance will be #80 million and it
is anticipated that WRB Insurance will achieve an A- rating or higher with a
major rating agency on completion.
* Kiln will obtain an indirect 20 per cent. interest in WRB Insurance for
a total investment of #16 million and Berkley London will obtain the remaining
80 per cent. interest in WRB Insurance for a total investment of #64 million.
* The Investment will be financed without recourse to Kiln shareholders
using the proceeds of a new committed #30 million letter of credit facility.
* The Investment furthers Kiln's strategic objectives of maximising
shareholder value by exploiting the current hard insurance market and by
developing specialist underwriting initiatives.
* The key benefits to Kiln resulting from the Investment are expected to
include:
- Attractive market opportunity. The Investment offers Kiln the
opportunity to enter the casualty insurance market, which the Independent
Directors believe has attractive prospects at the present time;
- Risk diversification. The casualty insurance market typically
demonstrates a different underwriting cycle from Kiln's core property-related
insurance lines, thereby offering an attractive opportunity for risk
diversification;
- Market diversification. Kiln remains committed to its position within
the Lloyd's market. The Investment will, however, allow Kiln to establish a
broader underwriting platform encompassing interests outside, as well as inside,
the Lloyd's market. The Independent Directors believe this will also provide
Kiln with an attractive income diversification; and
- Development of the Berkley relationship. Investing alongside the
Berkley Group allows Kiln to participate in the attractive opportunity afforded
by the casualty insurance market on a far greater scale than would be possible
on a stand alone basis and without raising significant additional capital from
its shareholders.
The Berkley Group is a major shareholder in Kiln and as such the Investment is a
related party transaction within the meaning of the Listing Rules. Certain
arrangements with regards to Kiln's future ability to invest in, and exit from
the Investment mean that the Investment is also classified as a Class 1
transaction under the Listing Rules. Due to this classification under the
Listing Rules, completion of the Investment is conditional upon, inter alia, the
approval of Kiln shareholders at an Extraordinary General Meeting which is to be
convened for 9.15 a.m. on 27 June 2003. It is anticipated that the circular
containing the terms of the Investment will be dispatched to shareholders later
today.
Edward Creasy, Chief Executive Officer of Kiln, said:
"It has long been our strategy at Kiln to diversify our operations within the
specialist insurance field, and in line with that strategy, this new venture
will give us access to a complementary insurance market. It will also allow us
to benefit from the rapidly increasing rates in the professional indemnity
market, and I look forward to working with the management team at W. R. Berkley
Insurance (Europe); I believe this is an excellent development for Kiln and its
shareholders."
Enquiries:
Kiln Tel: 020 7886 9000
Edward Creasy, Chief Executive Officer
Peter Haynes, Chief Financial Officer Designate
Lexicon Partners Tel: 020 7743 6330
Angus Winther
College Hill Tel: 020 7457 2020
James Henderson
The Directors of Kiln are the persons responsible for the information contained
in this document. To the best of the knowledge and belief of the Directors (who
have taken all reasonable care to ensure that such is the case) the information
contained in this document is in accordance with the facts and does not omit
anything likely to affect the import of such information.
Lexicon Partners, which is regulated by the FSA, is acting exclusively as
financial adviser to Kiln plc and, accordingly, will not be responsible to
anyone other than Kiln plc for providing the protection afforded to its
customers or for advising anyone other than Kiln plc in relation to the contents
of this document or any other matter referred to herein.
Introduction
Kiln today announces that it has entered into a Share Subscription and
Shareholders' Agreement with Berkley London, an indirect wholly owned subsidiary
of Berkley, in respect of an Investment of #80 million in total in WRB
Insurance, a newly incorporated insurance company. As a result of the
Investment, Kiln will obtain a 20 per cent. interest in WRB Insurance for a
total investment of #16 million, and Berkley London will obtain the remaining 80
per cent. interest in WRB Insurance for a total investment of #64 million.
Information on the Investment
Once authorised by the FSA, it is intended that WRB Insurance will operate as a
specialist casualty insurance provider in the London market. WRB Insurance will
be capitalised initially at #80 million and based on this level of capital (and
as a result of the relationship with the Berkley Group as a major shareholder)
Kiln and Berkley anticipate that WRB Insurance will achieve an A- rating or
higher with a major rating agency on completion.
WRB Insurance plans to commence underwriting in early July 2003. It is
anticipated that WRB Insurance will concentrate primarily on professional
indemnity insurance initially, with general liability insurance (public
liability and product liability) also being written. Other casualty insurance
products may be considered in the future as the business develops. It is
expected that WRB Insurance will participate in the London subscription market
and will also underwrite smaller UK regional business on a 100 per cent. basis.
WRB Insurance's business will be introduced by brokers, and it is not
anticipated that WRB Insurance will deal with policyholders on a direct basis.
WRB Insurance will underwrite predominantly UK-domiciled risks although it may
add other territories as its portfolio of underwritten business grows.
WRB Insurance's underwriting portfolio will be balanced by the underwriting of
both stand-alone primary and excess layer business. The maximum gross line size
is expected to be #5 million for professional indemnity business and #10 million
for general liability business. It is envisaged that WRB Insurance will
principally write primary insurance business, although some facultative
reinsurance may also be accepted.
WRB Insurance has recruited a high quality management team, which will be headed
by Stuart Wright as Chief Executive Officer and Director of Underwriting. In
addition, the executive management team will include Peter Glanfield as
Professional Indemnity Underwriting Manager and Paul Hosking as Chief Financial
Officer. The executive management team have well-established reputations in
their fields. In particular, Stuart Wright has over 25 years and Peter Glanfield
has over 13 years of underwriting experience, resulting in the team having well
established and long standing relationships within the London market.
Kiln's interests in WRB Insurance are to be represented through the appointment
of Kiln directors to the boards of both WRB Insurance and WRB Holdings. The
board of WRB Holdings will be made up of five directors, four of whom will be
nominated by Berkley London and one of whom will be nominated by Kiln who, in
the first instance, will be Edward Creasy. The board of WRB Insurance will
initially consist of two executive directors, one independent non-executive
director, up to six Berkley London nominated directors (up to one of whom may be
an executive director) and two Kiln nominated non-executive directors, who, in
the first instance, will be Edward Creasy and Robert Chase. Berkley London's
non-executive directors on the WRB Insurance board and the WRB Holdings board
will include William Robert Berkley and W. Robert Berkley, Jr. At least one Kiln
director is to be a member of all major board committees, and all major
decisions affecting the ongoing business of WRB Insurance, subject to certain
limitations, are to be subject to prior discussion with Kiln directors.
Background to and reasons for the Investment
In the Independent Directors' opinion, the Investment represents an attractive
investment opportunity for Kiln. The proposed Investment in WRB Insurance
furthers Kiln's stated strategic objectives of maximising shareholder value by
exploiting the current hard insurance market and by developing specialist
underwriting initiatives.
The Independent Directors believe that there are strong prospects for the UK
casualty insurance market as a whole, in particular within the professional
indemnity field. The Independent Directors anticipate that an experienced
management and underwriting team, operating within a well-capitalised insurance
vehicle, will be able to generate attractive returns from this market in the
current underwriting environment.
Insurance rates in the casualty insurance market typically show a different
correlation from rates in the property-related insurance market. Kiln's
investment in WRB Insurance consequently provides access to a different
underwriting cycle from Kiln's core property-related insurance lines, thereby
offering an attractive opportunity for risk diversification.
The Investment in WRB Insurance also allows Kiln to develop a broader
underwriting platform encompassing interests outside, as well as inside, the
Lloyd's market. Whilst Kiln remains committed to its position within the Lloyd's
market, the Independent Directors believe that there are benefits to Kiln in
having an interest in an alternative underwriting platform, which will diversify
Kiln's income streams and should serve to build Kiln's position of influence in
the London insurance market as a whole.
The Investment will also serve to reinforce Kiln's relationship with the Berkley
Group. On 25 April 2002, Kiln announced that it had entered into a relationship
with the Berkley Group, under which the Berkley Group would become a substantial
shareholder in Kiln. Kiln is pleased to be reinforcing further this relationship
through the proposed Investment.
The Independent Directors believe that making the Investment in conjunction with
the Berkley Group provides several advantages for Kiln compared with an
equivalent stand alone investment. Notably:
* Kiln will be able to gain exposure to an attractive and complementary
insurance market on a far greater scale than would be possible on a stand alone
basis without significantly increasing Kiln's capital base;
* due to the relationship with the Berkley Group as a major shareholder,
WRB Insurance will be able to achieve an A- rating or higher with a major rating
agency without requiring significant excess capital in its formative years,
which should enhance returns arising from the Investment;
* WRB Insurance will have access to Berkley's management capabilities and
expertise in casualty insurance underwriting and so Kiln will not need to invest
its management's time and resources in setting up and growing the business to
the same extent as would be the case with a stand alone investment; and
* taking a minority interest in the Investment reduces the impact on
Kiln's net assets of the new business strain associated with a start-up
insurance company.
In summary, the Independent Directors believe that the proposed Investment
furthers Kiln's stated strategic objectives and demonstrates clearly the merits
of Kiln's relationship with the Berkley Group, allowing Kiln to develop further
the scale and influence of the Kiln business to enhance shareholder value whilst
avoiding the need to raise significant additional capital from its shareholders.
Terms of the Investment
The terms of the Investment are governed by the Share Subscription and
Shareholders' Agreement and the WRB Holdings articles of association, which
include minority protection rights that seek to protect Kiln's interests in
relation to the Investment, including a Kiln put option and a call option over
Kiln's holding in WRB Insurance, together with drag along and tag along rights.
Exercise of Kiln's put option and of Kiln's tag along right may be subject to
further shareholder approval as a related party and/or Class 1 transaction, if
applicable, under the Listing Rules.
In addition to its initial investment of #16 million, Kiln has the ability to
increase its investment in WRB Holdings and WRB Finance by up to a further #9
million (which may be subject to Shareholder approval) on the same terms as set
out in the Share Subscription and Shareholders' Agreement.
Implementation of the Investment
The Investment is conditional on certain conditions precedent (details of which
are set out in the circular) being fulfilled or waived in writing by both Kiln
and Berkley London. Kiln currently anticipates that the conditions precedent are
likely to be satisfied on or around 30 June 2003.
Under the terms of the Share Subscription and Shareholders' Agreement, Kiln and
Berkley London will obtain indirect shareholdings in WRB Insurance via
intermediary equity and loan note investments in WRB Holdings and WRB Finance,
two newly incorporated companies. The capitalisation of WRB Insurance will be
#80 million. Kiln will obtain an indirect 20 per cent. equity interest in WRB
Insurance for a total investment of #16 million. The Berkley Group will obtain
the remaining 80 per cent. equity interest in WRB Insurance for a total
investment of #64 million.
The Investment will be financed without recourse to Kiln's Shareholders. Kiln
has entered into a Facility Agreement with Lloyds TSB Bank plc. Under the terms
of the Facility Agreement, Lloyds TSB Bank plc will make available to Kiln a #30
million letter of credit facility to support Kiln Underwriting Limited's
underwriting. This will enable the release by Lloyd's of cash and other assets
which will then be utilised in part to finance the Investment. The balance of
the released Funds at Lloyd's will be used partly to refinance an existing
letter of credit of National Westminster Bank plc (#5.5 million), which is used
to support Kiln Underwriting Limited's current underwriting with the remainder
being set aside for general corporate purposes. Lloyds TSB Bank plc will also
make available to Kiln a #16 million short term bridging facility to finance the
Investment for the period until the release by Lloyd's of the Funds at Lloyd's.
Financial effects of the Investment
It is expected that the Investment will be accounted for as an associate in the
consolidated accounts of Kiln. It is not expected that the Investment will have
a material impact on Kiln's net assets per share at Completion.
As WRB Insurance is a newly incorporated company, it has not generated any
turnover or profit and, due to WRB Insurance's start-up costs, the Investment is
expected to be initially modestly dilutive to Kiln's earnings per share. The
Independent Directors consider, however, that the longer term financial and
strategic prospects of the Investment will be beneficial to Shareholders.
It is expected that WRB Insurance will not pay any dividends to its shareholders
in the short term, with any profits generated being retained to support further
WRB Insurance's underwriting activities. Kiln's share of any increase in WRB
Insurance's net assets will, however, be reflected in Kiln's own net assets
under the expected accounting treatment of the Investment.
Classification of the transaction
Berkley, which is the ultimate parent company of Berkley London, owns,
indirectly through Berkley Insurance Company, approximately 20.1 per cent. of
the outstanding Kiln Shares. This means that the Investment is a related party
transaction within the meaning of the Listing Rules. Berkley London will also
have the right in certain circumstances to require Kiln to sell its holding in
the New Group to Berkley London (under a call option) or to a third party (drag
along rights). The exercise of the call option or the drag along is at the
discretion of Berkley London and the value to be attributed of these
arrangements is not subject to a maximum value, meaning that the Investment
(including the call option and drag along) is classified as a Class 1
transaction under the Listing Rules.
Due to this classification under the Listing Rules, Completion of the Investment
is conditional, inter alia, upon the approval of Kiln's independent Shareholders
(being Shareholders other than those who are Associated with Berkley), which
will be sought at the Extraordinary General Meeting, and the FSA authorisation
of WRB Insurance.
William Robert Berkley and W. Robert Berkley, Jr. are both non-executive
directors of the Company and are directors of Berkley, Berkley Insurance Company
and Berkley London, and so are not Independent Directors. Accordingly, they
have played no part in the decision-making process of the Independent Directors
relating to the Investment.
Recommendation
The Independent Directors, who have been so advised by Lexicon Partners, Kiln's
financial adviser in relation to the Investment, consider the terms of the
Investment to be fair and reasonable so far as the Shareholders are concerned.
In providing advice to the Independent Directors, Lexicon Partners has taken
into account the Independent Directors' commercial assessments of the
Investment.
The Independent Directors consider the Investment to be in the best interests of
Kiln and its Shareholders as a whole and accordingly recommend that you vote in
favour of the resolution to approve the Investment at the EGM as they intend to
do or procure support in respect of the shareholdings registered in their own
names or beneficially held for them. The holdings of the Independent Directors,
in aggregate, amount to approximately 1.19 million Kiln Shares, representing
approximately 0.58 per cent. of Kiln's existing issued share capital.
Note to editors
Kiln
Founded in 1962, Kiln is an international insurance and reinsurance underwriting
group. Kiln is listed on the London Stock Exchange with a market capitalisation
of approximately #169 million. Kiln's principal operating subsidiary, R J Kiln,
a Lloyd's managing agency, manages capacity of approximately #820 million
(including qualifying quota share) for the 2003 year of account, making it the
seventh largest Lloyd's agency currently trading in the Lloyd's insurance
market. Kiln Underwriting Limited, a Lloyd's corporate member, participates on
the Kiln syndicates, underwriting approximately #224.6 million of capacity for
the 2003 year of account.
Berkley
Founded in 1967, Berkley is an insurance holding company which, through its
subsidiaries, operates in five segments of the property casualty insurance
business: speciality lines of insurance (including excess and surplus lines and
commercial transportation); alternative markets (including the management of
alternative insurance market mechanisms); reinsurance; regional property
casualty insurance; and international. The group's speciality insurance,
alternative markets and reinsurance operations are conducted throughout the USA.
International operations are conducted primarily in Argentina and the
Philippines. Berkley is listed on the New York Stock Exchange with a market
capitalisation of approximately $2.7 billion. For the twelve months to 31
December 2002, Berkley reported net premiums written of $2.7 billion and net
income of $175.0 million. At 31 December 2002, Berkley's stockholders' equity
was over $1.3 billion.
DEFINITIONS
The following definitions apply throughout this document, unless the context
requires otherwise:
"Associated" Has the meaning ascribed thereto in chapter 11 of the Listing Rules
"Berkley" W. R. Berkley Corporation of 475 Steamboat Road, Greenwich, Connecticut
06830, United States of America
"Berkley Group" Berkley and any related companies including without limitation Berkley
Insurance Company and Berkley London
"Berkley Insurance Company" Berkley Insurance Company of 475 Steamboat Road, Greenwich, Connecticut
06830, United States of America, an indirect wholly owned subsidiary of
Berkley
"Berkley London" Berkley London Holdings, Inc. of 475 Steamboat Road, Greenwich, Connecticut
06830, United States of America, an indirect wholly owned subsidiary of
Berkley
"Completion" Completion of the Investment in accordance with the terms of the Share
Subscription and Shareholders' Agreement
"Extraordinary General The extraordinary general meeting of the Company to be convened at 9.15 a.m.
Meeting" or "EGM" on 27 June 2003 for the purpose of considering the ordinary resolution to
approve the Investment
"FSA" The Financial Services Authority
"Funds at Lloyd's" Funds held in trust at Lloyd's to support a Lloyd's member's underwriting
activities
"Independent Directors" Professor Ian Percy CBE, Edward Creasy, Roy Butler, Robert Chase, Peter
Haynes, Graham Ball, Reginald Brown and Charles Sebag-Montefiore
"Investment" The proposed investment in WRB Holdings and WRB Finance by Kiln and Berkley
London, the proposed investment in WRB Holdings by WRB Finance and the
proposed investment in WRB Insurance by WRB Holdings in accordance with the
terms of the Share Subscription and Shareholders' Agreement
"Kiln" or the "Company" Kiln plc
"Kiln Group" or the "Group" Kiln and any related company
"Kiln Shares" Ordinary shares of #0.01 each in the capital of Kiln plc
"Lexicon Partners" Lexicon Partners Limited, a company regulated by the FSA
"Listing Rules" The Listing Rules of the UK Listing Authority
"Lloyd's" The Society and Corporation of Lloyd's created and governed by the Lloyd's
Acts 1871-1982, including the Council of Lloyd's (and its delegates and other
persons through whom the Council of Lloyd's may act), as the context may
require
"New Group" WRB Finance, WRB Holdings, WRB Insurance and WRB Services
"Shareholders" Holders of Kiln Shares
"Share Subscription and The conditional agreement dated 11 June 2003 between inter alia the Company
Shareholders' Agreement" and Berkley London providing for the ownership and management of WRB Finance,
WRB Holdings, WRB Services and WRB Insurance
"UK Listing Authority" The FSA, acting in its capacity as the competent authority for the purposes
of Part VI of the Financial Services and Markets Act 2000
"WRB Finance" W. R. Berkley London Finance, Limited of 400 Capability Green, Luton,
Bedfordshire, LU1 3LU
"WRB Holdings" W. R. Berkley London Holdings, Limited of 400 Capability Green, Luton,
Bedfordshire, LU1 3LU
"WRB Insurance" W. R. Berkley Insurance (Europe), Limited of 400 Capability Green, Luton,
Bedfordshire, LU1 3LU, a wholly owned subsidiary of WRB Holdings
"WRB Services" W. R. Berkley London Staff, Limited of 400 Capability Green, Luton,
Bedfordshire, LU1 3LU, a wholly owned subsidiary of WRB Holdings
This information is provided by RNS
The company news service from the London Stock Exchange
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