Best Places Torus Insurance and Subs Ratings under Review/Negative

July 12, 2013

A.M. Best Europe – Rating Services Limited has placed under review with negative implications the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Torus Insurance (Bermuda) Limited, Torus Insurance (UK) Limited and Lichtenstein-based Torus Insurance (Europe) AG, as well as the ICR of “bbb-” of Bermuda-based Torus Insurance Holdings Limited, the ultimate parent company of the Torus group.

In a related action Best also announced that it has placed under review with negative implications the FSR of ‘A-‘ (Excellent) and ICRs of “a-” of Torus Specialty Insurance Company and Torus National Insurance Company, both domiciled in Wilmington, Delaware.

The rating actions follow the announcement of 9 July 2013 that Enstar Group Limited has entered into a definitive agreement to acquire Torus.

Best noted that “Enstar will issue ordinary voting shares and newly created non-voting preferred shares to an aggregate value of approximately $346 million to partially fund the transaction. In addition, Enstar will contribute approximately $69 million in cash, while affiliates of Stone Point Capital LLC will contribute approximately $277 million through an equity co-investment. The total consideration for the transaction is $692 million. Following the closing of the transaction, Enstar will own 60 percent of Torus with Stone Point owning the remaining 40 percent. The transaction is expected to close in the fourth quarter of 2013.”

Best described Torus’ consolidated financial results as having been “sub-par over the last three years,” adding that “additional capital injections have been required to support growth and offset retained losses. Management has taken actions to reduce earnings volatility and improve performance, but these are not yet fully tested.”

Best explained that while the acquisition, once completed, “will improve Torus’ financial flexibility and likely lead to expense savings, uncertainty exists surrounding the group’s prospective operating performance, capital position and business strategy under its new ownership.”

As a result, the ratings have been placed under review with negative implications. Best said it expects to resolve the under review status upon completion of the transaction, following discussions with Torus’ management, Enstar and Stone Point.

Best repeated its analysis of the Torus/Enstar transaction in a separate bulletin for the U.S.-based subsidiaries.

Source: A.M. Best Europe and A.M. Best (U.S.)

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