Continuing its repositioning as a specialty insurer, OneBeacon Insurance Group Ltd. is selling its runoff business to an affiliate of Armour Group Holdings Limited.
OneBeacon said it will transfer to Armour certain legal entities within the OneBeacon group, which will contain the assets, liabilities (including gross and ceded loss reserves), and capital supporting the runoff business, as well as certain elements of the runoff business infrastructure including staff and office space.
Armour is a Bermuda-based group of companies formed in 2007. It includes licensed insurers and reinsurers as well as specialized service companies.
OneBeacon said it expects to record an after-tax charge of $101 million in the third quarter related to the transaction.
OneBeacon CEO Mike Miller said the sale of the runoff business is the “final step” in OneBeacon’s transformation to a pure specialty company.
“This complete exit from our legacy liabilities is a major step in that transition. The charge associated with the sale, while significant on a GAAP basis, is in line with our view of the economics of running off the liabilities over time. Importantly, this transaction will free up over $100 million of capital, net of the loss on the transaction, further enhancing our financial flexibility and allowing us to focus our full attention on building on our already high-performing specialty results,” Miller said.
The runoff business includes non-specialty commercial lines and other legacy runoff business. Beginning with the company’s third quarter financials, the runoff business will be accounted for as held for sale and as a discontinued operation.
OneBeacon said it expects to record approximately $107 million of after-tax losses in its third quarter results related to its runoff business. In addition to the $101 million related to the transaction, OneBeacon will record a $6 million net loss from discontinued operations driven primarily by adverse prior year loss reserve development related to a legacy assumed reinsurance treaty.
The transaction is subject to regulatory approvals and is expected to close in 2013.
New York firm Mayer Brown is representing OneBeacon on this transaction. Boston-based Edwards Wildman is advising Armour.
OneBeacon Insurance Group Ltd. is a Bermuda-domiciled holding company.