Fairfax Runoff Sub RiverStone to Acquire All Shares of Brit Insurance Ltd.

June 19, 2012

The Netherlands-based Brit Group and Canada’s Fairfax Financial Holdings Limited have announced that RiverStone, Fairfax’ runoff subsidiary, has entered into an agreement with Brit to purchase all of the outstanding shares of UK-based Brit Insurance Limited (BIL), which wrote UK domestic, as well as some international, insurance and reinsurance before being placed into runoff earlier this year.

The transaction is subject to customary conditions including regulatory approval, and is expected to close in the fourth quarter of 2012.

A.M. Best reacted to the news by announcing that it has downgraded BIL’s ratings, and will keep the Brit Group’s ratings under review with negative implications.

The Brit Group said the sale of BIL completes its reorganization, and that it “is now positioned to focus on its strategic objective of being a global specialty (re)insurer underwriting on its Lloyd’s platform, as Brit Global Specialty.”

Brit also said it will “retain the liabilities and claims handling for certain business currently within BIL which relate to the Group’s ongoing core business now being written into Brit’s Lloyd’s syndicate 2987.”

Fairfax noted that as of March 31, 2012, “BIL’s gross and net reserves were approximately $1.9 billion and $1.3 billion, respectively, its cash and invested assets were approximately $1.9 billion, and its book value was approximately $530 million.

“RiverStone will purchase BIL at a discount to its book value, adjusted for certain pre-closing dividends. The purchase price for BIL is expected to be approximately $300 million, subject to certain adjustments at closing. The acquisition is expected to be financed using internal resources at RiverStone.”

Fairfax Chairman and CEO Prem Watsa commented: “We think that this is an excellent acquisition by Nick Bentley and his experienced team at RiverStone. We continue to look for opportunities to grow profitably in the runoff area.”

Mark Cloutier, Group CEO, Brit Insurance, described the BIL sale as “a significant milestone in our journey to restructure our capital base and to establish a leading position as a focused global specialty underwriter. We have undertaken a significant reorganization of the group over the last year, and following the transfer of Brit’s UK regional business to QBE in April; this transaction allows us to focus on growing our core global specialty business through our Lloyd’s platform, as Brit Global Specialty.

Furthermore, we are pleased with the outcome of our restructuring efforts whereby through the combination of this transaction and the earlier QBE deal we have realized a meaningful premium to book value for BIL and our UK Division.

RiverStone, a member of the Fairfax group have built a strong franchise and have an excellent reputation for managing the run-off of (re)insurance companies responsibly, so I am confident that this is the right home for the legacy liabilities of the UK business.”

Sources: Brit Group and Fairfax Financial Holdings

IJ Ed Note: The figures given above are in U.S. dollars.

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