11 October 2007
Insurance Insider
Insurance Insider
(Spring 2008) Time to reconsider reinsurance(Oct 2007) High court sanctions Ruxley acquisition of Generali unit(Oct 2007) Ruxley in landmark reinsurance-funded acquisition(Apr 2007) Ruxley in Generali run-off talks(Autumn 2006) Part VII business transfers - adding flexibility to the run-off equation(Spring 2006) Why we need a scheme monitor(Spring 2006) BAIC and after(Feb 2006) Solvent Schemes of Arrangement Conference(Nov 2005) Scheming for solvency(Oct 2005) A wake-up call(Sept 2005) Time To Wake Up(Sept 2005) Free Audio Conference: Rating the Raters(Aug/Sept 2005) Air Your Views(Aug 2005) Ruling could curtail solvent runoff schemes(March 2005) Tackling The Pools(Spring 2005) Selling like hot cakes(Spring 2005) The scheming solution(28/02/05) Influx of capital can impact premiums(Feb 05) Bringing finality to underwriting pools(Winter 04) Dangerous waters(04/11/04) Solvent schemes offer real boost(01/09/04) Buying Run-off(05/07/04) Run-off moves to another level(03/02/04) Run-off on a positive note(2004) 2003 A year of innovation(Winter 03) Ruxley buys Aviation & General(06/10/03) Ruxley takes whole of A&G(04/07/03) End of asbestos saga?(03/07/03) Ruxley closes APH book(Summer 03) Vulture Culture?
As reported in the October issue of The Insurance Insider, Ruxley pioneered a financing technique on the deal using a reinsurance policy from XL Re Ltd.
The structure allowed the firm to benefit from XL's A-range rating rather than relying on traditional debt financing to satisfy the Financial Services Authority (FSA) that an unrated run off entity, such as City General, is sufficiently well funded to receive a run-off book of business.
Following a High Court hearing earlier today, Ruxley's CEO John Winter said: "I am delighted that the court has sanctioned this acquisition. The deal used a novel financing technique using reinsurance that benefited from the reinsurer's A rating and meant we didn't have to use more costly and traditional debt financing."
In April, The Insurance Insider revealed that Ruxley was in talks with Generali to buy the London branch of the Italian giant's Swiss subsidiary through City General, a FSA authorised (re)insurer that has ceased underwriting and was bought by Ruxley in 2002.
Although London-based Ruxley has continued to decline to comment on the exact structure of the GAG acquisition, details of the transaction have been disclosed in an Explanatory Circular to GAG policyholders.
The document shows that Ruxley will acquire the GAG business via a Part VII transfer, which enables UK courts to approve the transfers of liabilities (and assets) from one entity to another subject to the consent of the FSA. Critically, the method transfers the legal rights and duties of the insurer without the individual consent of each policyholder.
According to the Independent Expert's report summarised in the circular: "The Transfer will result in City General receiving an additional capital injection, together with the benefit of a new reinsurance policy from XL Re Ltd, providing additional coverage to protect the Transferring Business. Together the capital injection and the new reinsurance coverage provide sufficient capital resources to meet the worst reasonable estimated outcome for the Transferring Business."
Market experts have suggested that by taking this approach, not only is the cost of raising the statutory capital significantly cheaper, but also policyholders have the additional comfort that the transferor in the deal is backed by a company with an A+ rating.
Philip Grant, chairman of the Association of Run-off Companies, has taken the position of nonexecutive chairman of City General.
The deal will be regarded as a significant acquisition by Ruxley whose last major purchase was Aviation & General in October 2003. GAG is domiciled in Geneva and is rated A+ with AM Best.