What happened

Watford Holdings (NASDAQ:WTRE), a somewhat obscure insurance and reinsurance provider, seems to be in play.

On Thursday, peer Enstar Group (NASDAQ:ESGR) offered to buy out the entirety of Watford for $31 per share, which would mean a rich premium of 35% on the previous day's closing price. Watford's stock blasted higher, ending the day up nearly 26% (but at $28.81, shy of Enstar's offer).

A business person's finger pointing to an insurance policy.

Image source: Getty Images.

So what

This might be either the start or the culmination of a bidding war. In mid-September, Arch Capital Group, one of Watford's founders and a major shareholder in the company, offered $26 per share to acquire Watford, according to a report from Reuters. This came several months after an activist investor, Capital Returns Management, pushed for Watford to be sold.

Watford has not yet publicly responded to Enstar Group's offer. It's not known if Arch Capital's September bid had been or is being considered, as well.

Now what

Watford's revenue has been choppy, and its bottom line quite the roller coaster -- since 2015, annual net profit has ranged from a gain of almost $147 million to a loss of nearly $35 million.

While some volatility is expected by investors in the insurance and reinsurance spaces due to the nature of the business, the more popular insurers tend to be more consistent in their results. This could be a reason why today's price spike didn't quite hit the premium Enstar is offering for the shares.