So why, then, is Validus making such a concerted—and seemingly contradictory—play for Transatlantic?

During a conference call on July 13 to announce Validus' proposal to acquire Transatlantic, Noonan said Validus had long “held the view that when presented with market upturn, [we] would look seriously at entering the [casualty] class.”

He continued: “We have not concluded that a market upturn is imminent. However, we do observe that accident-year results for casualty lines are unprofitable, reserve releases from prior years are dwindling and investment income is at historical lows. We see these as the seeds of a market likely to stabilize and improve over the next few years.”

Noonan told listeners: “These factors alone would not have caused us to enter the casualty market. We would be inclined to wait a bit longer. However, the availability of one of the leading global franchises at a fair valuation caused us to evaluate our position in a different context. We could wait a year or two, but the Transatlantic opportunity would no longer be available.”

THE VALIDUS VALUE-ADD

In his interview with NU, Noonan offered this take on the benefits of the deal for Transatlantic investors: “Our basic thesis for Transatlantic shareholders is that we bring really attractive earnings in a hardening short-tail market to you that makes cycle management so much easier.”

“You don't have to keep trying to find casualty business and hopefully generate a profit. You get the luxury as an underwriter [of casualty business] to say, 'This doesn't meet our standards. We'll pass and wait for a better market,'” he says. 

Noonan notes that while Transatlantic is often viewed as a casualty-reinsurance company, when combined with Validus, long-tail casualty would represent only about one-quarter of the combined reinsurance book.

In addition, Noonan notes there are some classes that Transatlantic defines as “short-tail casualty” that aren't really casualty—lines such as surety, credit and accident-and-health business. “A&H settles in 18 months, and it's not a third-party coverage,” Noonan says.

“When you actually look through [Transatlantic's business], you say these aren't even casualty classes. They're really short-tail classes—and most of them we already write,” he says, concluding that when you put the two companies together, the actual percentage of long-tail casualty is only 27 percent.

And that's how Noonan can reconcile his assertion that it's the right time to be shrinking casualty business—while going aggressively after Transatlantic.