Hannover Re Sells Clarendon to Bermuda Run-off Specialist Enstar Group

Hannover Re said it's reached an agreement on the sale of all operational companies of its U.S. subsidiary Clarendon Insurance Group Inc. to Bermuda-based run-off specialist Enstar Group Ltd.

The purchase price is about $200 million, which is equivalent to about 80% of the statutory equity of New York-based Clarendon.

The closing of the transaction, which is still subject to customary regulatory approvals, is expected for the second quarter of 2011, said Karl Steinle, a spokesperson for Hannover Re.

"The sale of Clarendon means that we are able to free up cash and to get some relief to our balance sheet," he said. "Also, reinsurance recoverables and the risks in our balance sheet will be reduced."

The Enstar Group, which specializes in the runoff of insurance and reinsurance companies, will have the opportunity to run this portfolio off profitably through economies of scale, according to Hannover Re.

By disposing of Clarendon, Hannover is also able to free itself from the operational risks associated with the run-off of a U.S. insurer and from the administrative expenses that would have been incurred in subsequent years, the company said in a statement. These future savings explain the markdown on the company's book value. "Also for this reason, in particular, the sale of Clarendon will cause a strain on the result in the current year--in an amount probably running into the mid-double-digit million euro range. The company, nevertheless, expects to be able to offset this from the profit on ordinary activities," according to the statement.

In terms of group net income, Hannover Re expects a post-tax profit of more than 700 million euro (US$916 million) to be generated for 2010.

J.P. Morgan Securities was the exclusive financial adviser to Hannover Re on the transaction.

Hannover Re is the third-largest market participant in the financial reinsurance market on a worldwide basis, a business that is underwritten mainly through the group's Irish subsidiaries, according to BestLink, which provides online access to A.M. Best's insurance information database.

Enstar stock (NASDAQ: ESGR) was trading at $85.30 a share on the afternoon of Dec. 22, down 0.43% from the previous close.

In 2009, Enstar said its wholly owned subsidiary, Nordic Run-Off Ltd., would pay $28 million to acquire Copenhagen Reinsurance Co. Ltd. from Alm. Brand Forsikring A/S (BestWire, June 1, 2009). The prior year, Enstar said it reached an agreement with Goshawk Insurance Holdings plc's board of directors on a cash offer for Goshawk (BestWire, June 24, 2008).

Hannover Re currently has a Best's Financial Strength Rating of A (Excellent). Clarendon Insurance Group has a current Best's Financial Strength Rating of A- (Excellent).

(By Lori Chordas, senior associate editor, Best's Review: [email protected])