Enstar Group Ltd., a Bermuda-based insurance management provider, agreed to buy Clarendon National Insurance Co. from Hannover Re for $200 million.
The deal will be financed through a bank-loan facility and cash, Enstar said today in a statement. The sale includes all the operational companies of Clarendon Insurance Group and allows Hannover Re “to free itself from the operational risks associated with the run-off of a U.S. insurer,” the Hanover, Germany-based company said separately.
Hannover Re, the world’s third-biggest reinsurer, bought U.S. specialty insurer Clarendon in 1998 as it sought to reduce its dependency on property and casualty reinsurance, where earnings can be more volatile. The company sold most of its specialty insurance business to Australia’s QBE Insurance Group Ltd. for $800 million in December 2006.
As the selling price is equivalent to about 80 percent of the statutory equity of Clarendon, Hannover Re expects to book a charge in the “mid-double-digit million-euro range” this year, it said. The company reiterated its target to post a profit in 2010 of more than 700 million euros ($918 million).
Specialty insurance includes art insurance, health insurance for pets and policies for high-risk drivers. Insurers or groups of insurance contracts that are in so-called run-off are no longer accepting new business, thus fading out the existing coverage over time. Enstar specializes in acquiring and managing businesses that are being run off.
The transaction, on which J.P. Morgan Securities acted as the exclusive financial adviser to Hannover Re, is expected to close in the second quarter of 2011, both parties said.