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China Re seals $950mn deal for Chaucer

September 13, 2018

China Re has struck a $950mn deal to acquire Lloyd’s carrier Chaucer from its US owner The Hanover.

The deal will see China Re pay The Hanover a cash consideration of $820mn, with a further $45mn contingent payment which may be adjusted downwards if catastrophe losses incurred in 2018 are above a certain threshold.

In addition, The Hanover will also receive an $85mn pre-signing dividend from Chaucer, bringing the total consideration to $950mn.

The Hanover said the deal represented a 1.66x multiple to Chaucer’s $520mn tangible equity as of 30 June 2018.

The US speciality carrier added that the transaction is structured so that, subject to certain exceptions, the risks and rewards of Chaucer’s business from 1 April 2018 until closing, are transferred to China Re.

In a statement, China Re said that the acquisition will accelerate its “overseas deployment in support of its international development strategy.”

“As well as boosting overseas business volumes, Chaucer will enhance China Re’s underwriting and technical expertise, crucial to successfully building out its business and further diversifying its portfolio worldwide,”it continued, adding that both business’ portfolios are highly complementary in terms of territory and business mix.

The deal will increase China Re’s foothold at Lloyd’s, having first entered the market when it created a special purpose arrangement (SPA) with Catlin. It now operates as standalone Syndicate 2088, writing £155mn of premiums in 2017.

In comparison, Chaucer is the eleventh-largest carrier at Lloyd’s writing around £1bn of gross premiums in 2017, with the bulk emanating from Syndicate 1084 and the remainder from nuclear Syndicate 1176 and its Africa-focussed SPA syndicate 6130 in partnership with Axa.

In its announcement, Chaucer confirmed that its senior management team will continue to lead the business under the Chaucer brand through their Lloyd’s syndicates, international network, and underwriting agencies, and Chaucer Insurance Company DAC, their insurance company in Dublin.

“The acquisition of Chaucer group by China Re represents a significant milestone in our international development, as well as the next step following the establishment of China Re Syndicate 2088 at Lloyd’s and the Singapore Branch,”said China Re chairman Yuan Linjiang.

“The combination of China Re’s financial strength and access to capital will help consolidate Chaucer’s position and create new development opportunities.”

Chaucer CEO John Fowle said he had been “impressed by the experience, commitment, and professionalism of China Re”since his first meetings with its executives and that he was “excited about the future together”.

“At Chaucer, we are fully committed to delivering a first class underwriting and claims service to our brokers, coverholders and clients, and believe that the support of China Re will enable us to build on our success to date and accelerate our strategy which has profitable growth at its core.”

The transaction is anticipated to close later this year or in the first quarter of 2019, subject to regulatory approvals and other customary closing conditions.