QBE to Acquire Hannover Re’s US Praetorian Subsidiary

December 13, 2006

Australia’s QBE Insurance Group has agreed to purchase the Praetorian Financial Group (PFG), the US operation of Hannover Rueckversicherung AG (Hannover Re) for US$800 million, subject to regulatory approvals.

QBE said the acquisition is complementary to its existing business in the US, and it “anticipates completion of the acquisition in the second quarter of 2007. PFG will add around US$1.4 billion to gross premium income on an annualized basis.” QBE also indicated it would fund the acquisition “from internal excess capital, dividend reinvestment and short-term debt.”

Hannover Re established PFG in 2005, when it undertook a major restructuring of its US operations, by essentially putting much of the business conducted by its longtime Clarendon subsidiary into runoff. (See IJ Web site July 6 and Sept. 5, 2005 and related articles).

PFG took over the remaining operations. These include: Insurance Company of Hannover (renamed Praetorian Insurance Company (PIC), an Illinois domiciled entity licensed to write admitted business in all 50 states; Redland Insurance Company (RIC) a New Jersey domiciled entity licensed to write admitted business in 45 states; Praetorian Specialty Insurance Company, a Delaware domiciled entity authorized to write non-admitted business in 37 states.

Earlier this year Hannover Re named Rodman Fox to head its US operations (See IJ web site Feb. 3). Fox, a well-known insurance executive, was instrumental in concluding the acquisition of E.W. Blanch by the UK’s Benfield Grieg in May 2001. Commenting on the deal, he stated: “Over the past year, Praetorian has made significant strides in strengthening and refining the company’s operational capabilities. The combination with QBE the Americas will build on those successes while allowing us to offer a broader range of products and maintain continuity in client relationships. We are excited by the opportunities 2007 presents and look forward to joining the very talented QBE family.”

Hannover Re CEO Wilhelm Zeller explained: “This successful sale demonstrates that it was the right decision to carve out our US primary specialty business into Praetorian Once this transaction is completed Hannover Re will concentrate exclusively on its core business of reinsurance. We have no doubt that with QBE – a leading Australian and international primary insurance group – a strong strategic partner has been found for Praetorian.”

QBE noted: “PFG is based in New York and writes 37 specialist property and casualty insurance programs through various managing agents (78 percent) and specialist retail agency business through brokers (22 percent). The combined operating ratio for the business written into PFG for 2005 was 81.7 percent and the projected combined operating ratio for 2006 is 78.1 percent.”

QBE also indicated that “PFG currently reinsures 50 percent of its business by way of quota share to Hannover Re and affiliates. QBE intends to cancel these reinsurance arrangements at closing and inject around US$200 million additional capital into PFG.
The acquisition will form part of QBE the Americas Division under Tim Kenny, President and CEO.”

QBE CEO Frank O’Halloran commented: “We have been fortunate to secure an excellent insurance business in the US which is highly complementary to our existing profitable specialist insurance program business. The acquisition meets our established criteria; in particular, earnings per share accretion in year one. Subject to no unforeseen circumstances, we anticipate that PFG will produce a profit after tax of US$150 million in the first full year before the cost of funding the acquisition, the capital injection and synergies.”

Kenny noted that the “acquisition is consistent with our strategy of building our business in the specialist insurance program and small to medium regional markets of the US. It follows the successful acquisitions of National Farmers Union Property and Casualty Company in 2005 and the One Beacon Agriculture division earlier this year.”

More information concerning the acquisition may be obtained on the QBE Website at: www.qbe.com.

Source: QBE, Hannover Re

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