Massachusetts-headquartered (re)insurance group The Hanover has signed a definitive agreement to sell London market carrier Chaucer to China Re.
The deal values Chaucer at $950mn, or 1.66x Chaucer’s tangible equity, as of 30 June this year.
The announcement confirms a report by this publication earlier today.
China Re will make a cash payment of $865mn for the business and The Hanover will receive a dividend of $85mn from Chaucer after the deal is signed.
Of the cash payment for Chaucer, $45mn will be held in escrow. This may be adjusted downwards if catastrophe losses for 2018 pass a certain level.
China Re will pay the $820mn remaining of the cash sum at the closing of the deal.
According to a statement from The Hanover, all risks and rewards of Chaucer’s business from 1 April this year will be transferred to China Re, subject to certain exceptions.
Commenting on the transaction, Jeffrey Farber, executive vice president and chief financial officer at The Hanover, said: "This transaction represents an attractive return for shareholders, providing us with greater financial flexibility to invest in the growth of our US agency business and return capital to our shareholders through a variety of options, including continued dividends, stock buybacks, debt management and special dividends."
He added: "The sale will reduce catastrophe exposure to extreme global events, while enhancing our return on equity potential.
“We look forward to our continuing successful partnership with Chaucer through the close of the sale and the transition," he added.
The Hanover was advised by Goldman Sachs for the transaction, while Debevoise and Plimpton provided legal advice.
The deal is subject to regulatory approval from the PRA as well as the Chinese regulator. It also requires approval from China Re’s shareholders.
Commenting on the transaction, Yuan Linjiang, chairman of China Re, said the combination of China Re’s financial strength and access to capital will help consolidate Chaucer’s position and create new development opportunities.
He Chunlei, president of China Re, said: “As Asia’s leading reinsurance group pursuing international development, China Re regards Chaucer as an ideal partner.
“We are delighted to be acquiring a top quartile performer in the Lloyd’s market and respect senior management’s achievements to date in growing the business to this point.”
He added: “We look forward to working closely with John Fowle [pictured], Chaucer CEO, and the management team.”
Aon Securities was China Re's financial adviser, while Sidley Austin provided legal advice.