Enstar has acquired Maiden’s North American diversified reinsurance business in a $307.5mn deal that will see the run-off giant take on around $1.3bn in reserves.
In a statement, Enstar said the book would be put into run-off in a move that follows hot on the heels of news that the renewal rights for its $823mn diversified reinsurance segment had been acquired by Alleghany-owned TransRe.
The North American diversified reinsurance book accounts for around a third of Maiden’s total premiums and includes everything not written through a long-standing $2bn quota share with sister company AmTrust.
News of today’s deal will effectively see Maiden become a captive reinsurer for AmTrust.
Enstar said the book it had acquired included property and casualty treaty reinsurance, casualty facultative reinsurance and accident and health treaty reinsurance.
As part of the transaction, it will novate and assume certain reinsurance agreements from Maiden’s Bermuda reinsurer, including certain reinsurance agreements with Maiden Re North America.
It said the net consideration for the deal was $307.5mn. In exchange, it will assume roughly $1.3bn in net loss and loss adjustment expense reserves and unearned premium reserves when the deal closes.
Enstar will fund the deal from cash on hand and borrowings under a revolving credit facility.
Last night, rating house AM Best said it had put Maiden’s “A-” financial strength rating at risk after the Bermudian announced plans to offload its North American business and sell a significant renewal book to TransRe.
As a result, AM Best put the carrier’s rating under review “with negative implications” citing uncertainty over future transactions and whether Maiden will get them over the line.
It also pointed to questions over Maiden’s relationship with sister company AmTrust, which is responsible for the vast majority of Maiden’s book.
Earlier this month, the US insurer revealed that it had negotiated extra time to cancel its $2bn reinsurance quota share with Maiden, which accounts for around two thirds of the Bermudian’s premiums.
The rating review reflects “the as yet-unresolved, previously disclosed, renewal of the reinsurance agreement with AmTrust” and the performance of reserves related to that book, AM Best said.
In the second quarter, Maiden’s relationship with AmTrust sent it to an unexpected $10.7mn operating loss as it booked a $28.4mn reserve charge against the book written for its sister company. It has boosted reserves by more than a quarter of a billion dollars on the book in the last 18 months alone.
In a statement Maiden’s incoming CEO Lawrence Metz - who replaces Art Raschbaum Maiden’s outgoing boss that stepped down as the group’s second quarter loss was announced - said the deal represented another step in the group’s ongoing strategic review run by BoA Merrill Lynch.
“This transaction will broaden our ability to manage and allocate capital as we move forward, and will create value for our shareholders,” he said.
“Today’s announcement along with our previously announced renewal rights transaction will further enhance our capital position,” said Patrick Haveron who has just taken over as chief financial officer.
”We are moving immediately to improve profitability by implementing additional operational efficiencies and expense reductions through the end of 2018, and we expect to provide further updates as we move forward.”