Tower and CastlePoint to Acquire Hermitage Insurance for $135M

Tower Group, Inc. and CastlePoint Holdings, Ltd. announced today that CastlePoint Reinsurance Co., Ltd., a Bermuda-based subsidiary of CastlePoint, has agreed to acquire HIG, Inc.

Bermuda-based CastlePoint said it will pay the seller, a subsidiary of Brookfield Asset Management Inc., $27 million in cash plus the adjusted closing book value of Hermitage. The total cash consideration is expected to be approximately $135 million with no external financing required.

On August 5, 2008, New York-based Tower entered into an agreement to acquire CastlePoint and they expect to close that transaction in early December 2008. Tower and CastlePoint expect that the acquisition of Hermitage will close in late December 2008, after the closing of the Tower-CastlePoint acquisition.

Hermitage is a specialty property and casualty insurance holding company offering both admitted and excess and surplus products to small commercial customers throughout the eastern United States. Hermitage has two operating subsidiaries: Hermitage Insurance Co. and Kodiak Insurance Co.

The Hermitage transaction represents the acquisition of a profitable book of business and an E&S lines platform covering 29 states and the District of Columbia. The Hermitage subsidiaries also have admitted licenses in 10 states.

The Hermitage transaction will provide access to 150 new retail agents in the Southeast who have no overlap with CastlePoint’s or Tower’s existing producers and will also further strengthen CastlePoint’s and Tower’s wholesale distribution in the eastern U.S.

Officials said that Hermitage is expected to produce approximately $100 million in gross written premiums for 2008, and its net loss ratio is 52.3% through the first six months of 2008.

Michael H. Lee, chairman and CEO of both Tower and CastlePoint, explained how the Hermitage and Castlepoint acqusitions are linked.
“The Hermitage acquisition reinforces the post-CastlePoint acquisition strategy that we outlined when we announced the acquisition of CastlePoint by Tower on August 5th. Through this transaction, Tower and CastlePoint will be able to acquire a very profitable business similar to Tower’s business by utilizing CastlePoint’s capital. In addition, CastlePoint will be able to shift more of CastlePoint Reinsurance Co.’s capital from reinsurance to insurance in response to current market conditions. The transaction further supports Tower’s national expansion plans by focusing on underserved market segments through wholesale agents while expanding its retail distribution system in the Southeast,” he said.

Tower and CastlePoint also entered into a separate agreement that will occur following CastlePoint’s acquisition of Hermitage for $135 million. Tower has agreed to buy Hermitage’s operating assets including rights to policy renewals and producer appointments from CastlePoint for $16 million in cash. T

The transactions between Hermitage and CastlePoint and those between Tower and CastlePoint, including any ancillary agreements, are subject to customary regulatory approvals.

Source: Tower and CastlePoint