XL Group and Catlin Group, currently major rivals in the global P&C underwriting market, independently confirmed that they are actively engaged in talks regarding a potential merger.

According to sources at Catlin, XL initiated the discussion and put forth a preliminary offer of cash and stock that would total just under $4 billion.  Catlin’s stock, which is traded on the London Stock Exchange, rose 15 percent on the news.

Catlin Group Limited is based in Bermuda and owns the largest syndicate at Lloyd's of London.

XL Group is declining to comment on the proposed merger, but issued a statement from CEO Mike McGavick:

“Both XL and Catlin—respected, innovative, global P&C firms—are well-positioned on their own.  However, we both believe that we will be far better positioned and stronger together.  We see this transaction as deeply accelerating the strategies of both companies.  Specifically, the combined entity would be a leader in the global specialty and property cat markets and would make greater and more efficient use of both companies' global networks and infrastructure.”

While Catlin could potentially give XL a broader global distribution footprint for its specialty insurance and reinsurance underwriting, not every market observer is convinced that bigger is necessarily better when it comes to meeting market needs and building the most profitable possible book.

“If I’m a prospective customer, I’m not sure that I’d find any compelling value in the fact that you have more customers today than you did yesterday,” says Meyer Shields, a managing director at investment adviser Keefe, Bruyette & Woods.  “I also don’t think specialty underwriting—which is really more of an art than a science—is something that the market should automatically assume can be scaled via M&A.”

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