China Re has confirmed its acquisition of Chaucer in a deal that will see the Lloyd’s syndicate’s current owner, The Hanover, walk away with $950mn unless this year’s catastrophe losses exceed expectation.
The consideration for the deal will see China Re pay The Hanover $865mn in cash, while the US specialty carrier will also receive an $85mn pre-signing dividend from its soon-to-be-sold Lloyd’s carrier.
In its own announcement, Chaucer said it will retain its brand and will continue to be led by its existing senior management team headed up by CEO John Fowle.
The Hanover said the deal represented a 1.66x multiple to Chaucer’s $520mn tangible equity at the end of June. The insurer said that goodwill and intangible assets totaled $73.2mn.
It said the deal was structured so that - with certain exceptions - both the “risks and rewards” of Chaucer’s business would be transferred on to China Re’s balance sheet going back from 1 April this year until closing, which is expected by the end of the first quarter.
It noted that $45mn of China Re’s contribution to the deal would be held in escrow after the deal closes, warning that the sum may be adjusted downwards if incurred 2018 cat losses are above a certain threshold.
China Re said the acquisition was “highly complementary in terms of territory and business mix”.
“The acquisition of Chaucer group by China Re represents a significant milestone in our international development, as well as the next step following the establishment of China Re Syndicate 2088 at Lloyd’s and the Singapore Branch,” said China Re chairman Yuan Linjiang.
“The combination of China Re’s financial strength and access to capital will help consolidate Chaucer’s position and create new development opportunities.”
Chaucer CEO Fowle said he had been “impressed by the experience, commitment, and professionalism of China Re” since his first meetings with its executives.
“At Chaucer, we are fully committed to delivering a first class underwriting and claims service to our brokers, coverholders and clients, and believe that the support of China Re will enable us to build on our success to date, and accelerate our strategy which has profitable growth at its core.”
John Roche, who heads up The Hanover, said: “Our decision to sell Chaucer followed an extensive strategic review and careful consideration.”
“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.”
Roche said the acquisition would enable Chaucer to continue to “thrive and prosper by joining forces with China Re”.
“Furthermore, this transaction is an attractive outcome for our shareholders, recognising the value created through our ownership of Chaucer since its acquisition in 2011,” Roche said.
After The Hanover acquired Chaucer for £292mn - or $470mn at the exchange rate then - it has made $500mn in pre-tax profits alone since 2014 alone.
Discussing his ambitions for The Hanover after the transaction, Roche said: “We will continue to invest in and execute our strategy to be the carrier of choice for our agent partners and their customers.
“This includes accelerated expansion of our specialized capabilities in commercial lines businesses as well as continued growth and penetration in the personal lines and small commercial sectors.”