Goldman’s Ariel Acquisition To Strengthen Reinsurance Offering

Goldman Sachs (NYSE:GS) finalized a deal to acquire Bermuda-based reinsurer Ariel Holdings late last week. ^[1] Although details about the deal have not been disclosed, Goldman acknowledged that the amount it is shelling out “isn’t material” to its operations. However, this acquisition does demonstrate Goldman’s strategy of exploring new businesses and growing smaller business units as it faces increasing regulatory pressure to reduce its substantial dependence on trading activities.

This news comes within weeks of reports that Goldman is looking to grow its mutual fund operations in India with the acquisition of Fidelity India Fund Management (see Goldman Eyes Fidelity’s India Mutual Fund). The acquisition will see Ariel becoming a part of the Goldman Sachs Reinsurance Group as Ariel Re. Notably, competitors like JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS) also ventured into the reinsurance industry after devastating hurricanes led to a spike in demand in 2005.

We maintain our $126 price estimate for Goldman’s stock, which is at a premium of about 6% to current market prices.

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Goldman will add Ariel’s expertise to complement its existing property-and-casualty reinsurance business. Goldman also has an established annuity and life-insurance business under the name Commonwealth Annuity & Life Insurance Co.

With revenues of under $500 million in 2011, Ariel is recognized for its “deep-rooted focus on an analytical and transparent approach to taking risk.” Goldman intends to retain most of Ariel’s staff after the acquisition slated for completion in April.

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1. Goldman Sachs Buys Ariel To Boost Reinsurance Business, The Wall Street Journal, Mar 1 2012 [↩]