The Hanover Insurance Group has agreed to sell Chaucer, its Lloyd’s-focused international specialty business, to China Reinsurance Group Corp. for total proceeds of $950 million.
The Hanover had indicated in March it was considering selling Chaucer. The insurer said the transaction will allow it to focus on expanding its domestic business.
The Hanover acquired Chaucer in 2011 in a $474 million deal.
“Our decision to sell Chaucer followed an extensive strategic review and careful consideration,” said John C. Roche, president and chief executive officer at The Hanover. “This transaction will enable us to build on the growing momentum in our domestic property and casualty businesses, as we continue to advance our long-term strategy and deliver even stronger shareholder returns.”
The purchase price includes a cash consideration from China Re of $865 million and a pre-signing dividend from Chaucer of $85 million, received in the second quarter of this year.
The transaction is anticipated to close late this year or in the first quarter of next year. The closing is subject to regulatory approvals, including the Prudential Regulation Authority, Lloyd’s of London and required approvals from the regulatory entities of the People’s Republic of China, in addition to approval from China Re’s shareholders.
The total consideration, adjusted for the pre-signing dividend, represents a multiple of 1.66 times Chaucer’s tangible equity of $520 million as of June 30, 2018.
The Hanover estimates the sale will result in a net GAAP after-tax gain which will be recorded in discontinued operations at sale execution.
Roche said the acquisition will also enable Chaucer to prosper by joining forces with China Re Group, as China Re is actively” enhancing its international presence and exploring business opportunities in the global market.”
“We are very honoured to have China Re as our new partner,” John Fowle, Chaucer’s chief executive officer said in a prepared joint statement with China Re. “We have been extremely impressed by the experience, commitment, and professionalism of China Re since our first meetings and we are excited about the future together.”
“We are deeply impressed by Chaucer’s long history, outstanding management and corporate team, robust profitability and strong risk management capabilities,” Yuan Linjiang, chairman of China Re, commented. “With Chaucer’s established market leading position in specialty insurance, we are convinced that with this acquisition, our Group’s core competitiveness will be greatly strengthened. Together, we will secure greater and more diversified business and a higher status in international markets.”
The move comes as Chaucer has been expanding. Last December, Chaucer sponsored the formation of a reinsurance sidecar to provide collateralized capacity for Chaucer Syndicate 1084’s global property reinsurance portfolio in 2018. Last July, Chaucer acquired SLE Holdings, a Lloyd’s managing general underwriting agency based in Sydney, Australia that underwrites for sports, leisure and entertainment markets. Last June, Chaucer formed a Dublin-based company to write international specialty insurance business.
China Re originated from the People’s Insurance Company of China established in October 1949. It is the only state-owned reinsurance group established by the Ministry of Finance of the People’s Republic of China and Central Huijin Investment Co. It ranks first in Asia and eighth globally in terms of reinsurance premium.
China Re reports registered capital of RMB 42,479,808,085 yuan (about US$6.2 billion), of which the Ministry of Finance holds 12.72 percent and Central Huijin Investment LLC. holds 71.56 percent of the shares.
China Re holds controlling stakes in five domestic subsidiaries and has two overseas subsidiaries, China Re UK and China Re Underwriting Agency Co., as well as one overseas branch company, China Reinsurance (Group) Corporation Singapore Branch. It also indirectly controls one overseas subsidiary, China Re Asset Management (Hong Kong) Co. It has three offices outside mainland China in London, Hong Kong and New York.
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