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Catalina acquires run-off insurer Alea from Fortress

Legacy acquisition firm Catalina has agreed to purchase the run-off reinsurer Alea Group from New York buyout firm Fortress Investment Group for an undisclosed sum.

The deal had been on the cards ever since Fortress put its majority stake in Alea up for sale, as The Insurance Insider revealed earlier this month. It is subject to regulatory approval by the Bermuda Monetary Authority and the New York Department of Financial Services.

Alea was a Kohlberg Kravis Roberts (KKR)-backed reinsurer that was forced into run-off into 2005 following a damaging downgrade by AM Best. It had total assets of $540mn, gross reserves of $270mn, net reserves of $252mn and a net asset value of $103mn as at the end of June 2013.

Fortress bought a 72 percent stake in Alea for $460mn in mid-2007 with a view to turning it into a consolidation vehicle.

Private-equity-backed Catalina has had previous involvement with Alea, buying its UK arm at a slight discount to book value in October 2009. The sale was part of a restructuring in which Alea combined its European and Bermuda operations.

Catalina's founding CEO and chairman Chris Fagan said: "We continue to see a significant level of deal flow in the non-life run-off sector across the US, Bermuda and Europe. Increasingly, more of the transactions are reinsurance or portfolio transfer transactions for legacy liabilities."

Fagan said the firm had regulated insurance company balance sheets in all major jurisdictions, and was well positioned to provide reinsurance solutions for legacy reserves as well as substantial company acquisitions.

This is Catalina's second purchase this year after it agreed to buy American Safety Reinsurance in August, following a bidding war with Fairfax.

Alea is understood to have an international reinsurance portfolio that makes up about $120mn in reserves, as well as a US and Italian life reinsurance business.

The group was set up in 1997 by KKR as Switzerland-based Rhine Re Group, which later acquired the Equus Re operations in the US and the Imperial Fire & Marine Reinsurance Company. It rebranded as Alea in 2000, and eventually floated on the London Stock Exchange.

But the firm made substantial underwriting losses that culminated in the 2005 hurricanes Katrina, Rita and Wilma.

It has since sold off divisions and dramatically shrunk its liabilities through commutations, with much of the business now run-off.

Mayer Brown LLP acted as legal adviser to Catalina in this transaction. Willis Capital Markets and Advisory acted as financial adviser, and Willkie Farr & Gallagher LLP acted as legal adviser to Alea Group.

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