Bermudian run-off reinsurer Alea has agreed to sell its excess and surplus lines subsidiary, Alea North America Specialty Insurance Company, to newly-formed U.S. speciality writer Praetorian Financial Group, a unit of German reinsurer Hannover Re.
Praetorian subsidiary Insurance Corporation of Hannover will pay between $30 million and $36 million for the Delaware-based firm – $4 million in cash plus Anasic’s policyholders’ surplus at the transaction’s closing date, which could be between $26 million and $32 million. Alea will assume all liabilities underwritten by Anasic until the deal closes, and then run that business off.
Susan Rivera, president of Praetorian, says Anasic – which will be renamed Praetorian Specialty Insurance – will give the insurer increased flexibility in its rate and form filing. Unlike traditional state-regulated insurance companies, surplus lines firms, also known as non-admitted firms, do not have to get regulatory approval to change prices or policy wordings. “Praetorian was formed with two admitted carriers, but no surplus lines carrier,” says Rivera. “The strategic importance of this acquisition is limited to the surplus lines authority of the company.”
Anasic has authority to write surplus lines in 38 states. But Praetorian will look to increase this number quickly, according to Rod Fox, chief executive of the company. “We’re interested in full national scope,” he says.
Praetorian will use Anasic to write surplus lines business that was previously written by Clarendon. Praetorian received the renewal rights from Clarendon for this business earlier this year. It is worth about $300 million in annual gross written premiums, according to company spokesman Michael Lyons.
Praetorian did not rule out forming its own surplus lines writer from scratch, but decided to buy an existing unit instead. Fox believes the risks of integrating a surplus lines writer into the newly-formed insurer are slight, because the unit is small and only wrote about $15 million in premium in 2005.
“Yes we’re a new formation, but of an existing company,” says Fox. “We’ve been around a while and we are fairly comfortable with the acquisition. We looked very closely at it and, after extensive due diligence and structuring, we are comfortable with the risk.”
The closure of the deal is subject to regulatory approval, which Fox says is expected in August. Praetorian will not be hiring any of Anasic’s staff.