Apollo and CVC close in on sale of insurer Brit

The private equity backers of Brit are in detailed talks to sell the FTSE 250 insurance company less than a year after it launched on the stock exchange, according to people familiar with the matter.

Bankers said several parties - including at least one based in North America - had expressed an interest in recent weeks in buying Brit, which is majority owned by buyout groups Apollo and CVC and has a market capitalisation of £1.1bn.

An announcement about the future of the Lloyd's of London insurer, which provides a wide range of specialist cover for areas from shipping to kidnapping, could come as early as Monday night, the people said. All parties declined to comment.

A transaction would be the latest sign that mergers and acquisitions activity in the specialist insurance and reinsurance sector is heating up.

Intense competition has depressed premiums in important lines of business, such as catastrophe reinsurance, encouraging underwriters to consolidate.

New York-listed XL last month agreed to buy the largest Lloyd's insurer, Catlin, for about £2.8bn. Three weeks ago, two New York listed insurers - Axis Capital and PartnerRe - agreed an $11bn merger.

The sale of Brit could allow its private equity backers to generate higher returns than if they were to sell down their stakes further on the public markets.

Apollo and CVC sold a quarter of their stake in Brit in an initial public offering last spring that raised £240m. The duo had acquired the company for £888m in 2011.

Shares in Brit struggled after listing at 240p, slumping to as low as 204?p within a month of the IPO.

The insurer's stock price has since recovered as deal activity has underscored the attraction of Lloyd's underwriters to prospective buyers. The shares, which have also been supported by the prospect of a chunky dividend payout, closed at 274.4p on Monday.

Apollo retains a 40 per cent stake and CVC a 34 per cent in the insurer, whose largest institutional shareholders include the BAE Systems pension fund and CCLA, which manages investments for local authorities and charities.

Brit, chaired by the former Lloyd's of London chief executive Richard Ward, has seen its shares continue to trade at a discount to its London-listed peers. While the company trades at a premium of 43 per cent to book value, Hiscox is on 81 per cent and Beazley 69 per cent.

The insurer is expected to pay a special dividend when it discloses its debut results as a public company next week.

Numis has pencilled in a special dividend of 4.2p a share on top of a basic payout of 18.7p. The broker forecasts Brit's annual pre-tax profits will rise from £106m to £155m.

Bankers are expecting more dealmaking in the industry. Smaller reinsurers of natural catastrophes that operate in Bermuda, and at the Lloyd's of London market, are under particular strain.

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