Top Reinsurer to Gain Big U.S. Presence With Purchase

Munich Re, the world’s biggest reinsurer, would gain its first significant presence in the U.S. market with an agreement announced Wednesday to buy American Re Corp. for $3.3 billion.

Kohlberg Kravis Roberts & Co., which paid $1.4 billion for American Re in 1992, has agreed to sell its remaining 64% stake to Munich Re of Frankfurt, Germany, the companies said.

“Munich Re is very big in the world market but not very big in the U.S., so it makes absolute sense they would buy a U.S. company to increase their presence,” said Mark Newsome, senior analyst for Firemark Group, an insurance investment firm in Morristown, N.J.

“The U.S. has about 40% of the world market,” Newsome said. “From Munich’s standpoint, how can you say you’re the leading world reinsurer if you don’t have a big presence in the U.S.?”

The news sent American Re shares up 7.7% in active trading on the New York Stock Exchange, rising $4.50 to $62.875.

Falling prices and stronger competition have led to a number of takeovers recently in reinsurance, which protects insurance companies from the risk of potentially debilitating claims.

The deal must be approved by shareholders of Princeton, N.J.-based American Re and by U.S. and German regulators.

“The purchase means a huge step forward for our core business,” Munich Re Chairman Hans Juergen Schinzler said.

American Re is the third-largest property and casualty reinsurer, with about $2.6 billion gross premium income annually, Munich Re said.

“Munich Re is a great company; they’re well-respected and well-known, and I think it makes a nice fit for American Re,” Newsome said.

“Although we had anticipated a much longer formal association, we know that the company under the leadership of [Chief Executive Paul H. Inderbitzin] and his colleagues will continue to flourish,” said Saul Fox, general partner at KKR.

American Re spokesman Tom Walker said the company would retain its name, headquarters and 1,200 employees.

There will be few changes in a merger “that will exploit the strengths of both companies,” Walker said.