Once Chaucer is officially sold, Hanover will focus on its U.S. property and casualty business.
With an eye toward building up its domestic property and casualty business, Hanover Insurance has agreed to sell its international specialty unit Chaucer to China Re for $950 million. Included in the purchase price is $865 million in cash from China Re plus an $85-million pre-signing dividend from Chaucer obtained in the second quarter.
The sale is expected to close later this year or in the first quarter of 2019 after regulators in China and China Re shareholders approve the deal. Once the sale is complete, Hanover estimates it will record a net GAAP after-tax gain and report any earnings from Chaucer as discontinued operations beginning in the third quarter.
Hanover nearly doubled what it paid for Chaucer in 2011 when it acquired the company for $474 million. The insurer had sought to sell the unit since March. With a deal in place, Hanover President and CEO John C. Roche said the company will now focus on its P&C lines in the U.S.
In a conference call after the Chaucer sale was announced, Roche emphasized Hanover intends to pursue organic growth by acquiring small to midsize companies and hiring top executives from other insurance companies. He added the company’s plan is “to be the premier property and casualty company in the independent agency channel.”
Although Roche indicated Hanover could have held onto to Chaucer, he noted that by divesting the unit the insurer lessens its risk exposure to worldwide natural disasters, especially following the severe catastrophes of 2017. The Chaucer sale enables Hanover to steady its risk portfolio, putting it on par with a primary U.S. insurance carrier, and cut its capital requirements, Roche explained.
China Re Expanding
While Hanover looks to domestic growth, Chaucer’s acquisition by China Re paves the way for its further expansion internationally. Already Chaucer has made its own moves to increase its global presence.
Last year, it bought SLE Holdings, which underwrites sports, leisure, and entertainment markets as a Lloyd’s managing general underwriting agency. Chaucer made a similar deal in 2017 when it launched a Dublin-based entity to underwrite global specialty insurance.
Established in 1949, China Re is China’s only state-owned insurance group held in partnership with Central Huijin Investment Co. Ranked by reinsurance premium, China Re is first in Asia and eighth worldwide.
An Industry Trend
Though U.S.-based insurance M&As led all other regions last year, deals like the Hanover-China Re sale signal 2018 will be just as active as insurers sell off units that no longer match their core business or add companies that give them entry into new markets. In early September, for example, The Hartford agreed to buy Navigators Group, a specialty insurer, for $2.1 billion.
In a similar deal, AIG closed on its $5.56-billion acquisition of Validus Holdings, a Bermuda-based reinsurer. By acquiring Validus, AIG fills out its corporate lineup with Validus Re; AlphaCat, an insurance-linked securities (ILS) asset manager; Talbot, a Lloyd’s syndicate; Western World, which specializes in U.S. small commercial excess and surplus underwriting; and North American agriculture insurance provider Crop Risk Services.
At the same time insurers seek growth through acquisitions, some are offloading businesses in order to concentrate on their primary specialties. The Hartford, for example, sold off its runoff life and annuity unit in June to private equity outfit Cornell Capital LLC. Soon after the economic collapse of 2008, the company’s strategy had been to beef up its property and casualty and group insurance lines while exiting the life and annuity sector.
Between established insurers targeting M&As and private equity making plays in the industry, 2018 is shaping up as another year of major insurance deals that agents need to monitor.