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NU Online News Service, Feb. 3, 3:12 p.m. EST
Bermuda-based insurer OneBeacon Insurance Group said it will sell its personal lines business to Tower Group Inc. for about $180.5 million.
Tower Group will acquire Massachusetts Homeland Insurance Co., York Insurance Co. of Maine and two reciprocal insurers, Adirondack Insurance Exchange of New York and New Jersey Skylands Insurance Association.
OneBeacon said that subject to regulatory approval, the deal is expected to close near the end of the second quarter of 2010.
All OneBeacon specialty lines, including the collector car and boat business produced through Hagerty Insurance and the personal lines assigned risk business written through AutoOne, will remain with the company, the firm explained.
Mike Miller, OneBeacon’s chief executive officer, said the sale will free up a significant amount of capital, increasing the company’s financial flexibility and reducing its catastrophe exposure.
During a conference call with financial analysts, Paul McDonough, the company’s chief financial officer, said the transaction would free up about $500 million in un-deployed capital.
Mr. Miller said the capital will allow for new opportunities including share buy-backs, return of capital to shareholders, reduction in debt and “investing in new opportunities.”
In a separate statement, Tower Group said it will write and manage the private passenger automobile, homeowners and package policies through the companies currently issuing the policies and combine its existing personal lines operations with the business it is acquiring from OneBeacon.
OneBeacon said Tower Group plans to hire many of the managers and employees at the current companies.
In a comment on the deal, rating service A.M. Best Co. said the purchase would not affect Tower Group’s financial strength rating of “A-minus (Excellent).”
However, Standard & Poor’s placed OneBeacon and its reinsurance subsidiary White Mountain on credit watch with negative implications. It said the company was making a radical change to its business profile with the sale with a reduction in diversification and sources of revenue.
Late today, Moody’s confirmed its “A2” insurer financial strength rating of OneBeacon. The outlook on the rating is negative.
In early December, OneBeacon sold the renewal rights of its non-specialty commercial lines business to The Hanover Insurance Group.
OneBeacon also reported net income for the fourth quarter of $72 million compared to net loss of $173 million for the same period in 2008. Revenues in the quarter rose 232 percent, or $391 million, to $560 million.
For the year, net income was $342 million compared to net loss of $383 million in 2008. Revenues rose 84 percent, or $1.08 billion, to $2.38 billion.
For the year, the company said its insurance operations combined ratio stood at 94.4, improving from 95 the previous year.