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Enstar in £957m legacy UK employers’ liability reinsurance deal with RSA

8th February 2017 - Author: Steve Evans

A subsidiary of Bermuda based insurance, reinsurance and run-off specialist Enstar Group has entered into a reinsurance agreement with RSA Insurance Group PLC to reinsure £957 million of its legacy UK employers’ liability business.

The legacy reinsurance deal will see Enstar’s subsidiary assuming £957 million (approximately $1.2 billion) of RSA’s gross insurance reserves related to business from 2005 and before, largely consisting of UK employers’ liability reserves. The gross reserves equate to roughly £834 million net (approximately $1.0 billion).

In return for the run-off transaction, RSA will pay Enstar’s subsidiary a £799 million reinsurance premium.

RSA said that one of the benefits of the transaction is to its capital position, while will improve by adding roughly 17-20 points of Solvency II coverage.

This legacy reinsurance transaction, effected as a 100% quota share, is designed to give RSA finality on this portion of its UK employers’ liability business. Initially the reinsurance arrangement, entered into as of the 31st December 2016, will transfer the economics of the portfolio up to the policy’s limits to Enstar.

Following this, the parties will enter into a portfolio transfer arrangement for this business, under Part VII of the Financial Services and Markets Act 2000, providing RSA with legal finality for its obligations to service these reserves.

Interestingly, around 75% of the liabilities included in the legacy deal relate to asbestos, and the rest largely consist of abuse, deafness, marine and aviation liabilities.

RSA said that in 2015 the subject business accounted for a pre-tax loss of £39m in its financial statements. Almost £35m of net discounted post-2005 legacy liabilities will remain RSA’s to manage after the transaction completes.

Dominic Silvester, Enstar’s Chief Executive Officer, commented on the legacy reinsurance deal; “RSA’s sizable portfolio is an attractive opportunity for Enstar that substantially expands our presence in the U.K. employers’ liability area, a market that has seen a great deal of activity recently.  We welcome the opportunity to partner with RSA, a leading multinational insurance firm, in structuring and executing a transaction for this large legacy portfolio.”

Stephen Hester, RSA Group Chief Executive, also said; “We are pleased to have achieved this valuable risk clean-up transaction with Enstar. It allows us to focus even more on driving the outperformance of RSA’s continuing businesses. Earnings accretion, risk reduction and capital improvement are a happy combination to report.

“As previously indicated, we expect to deploy the capital resources released to benefit earnings and capital quality through additional debt retirement in 2017.”

The transaction, remains subject to completion and putting in place certain security arrangements, and the portfolio transfer remains subject to court, regulatory and other approvals.

Source: Globe Newswire.

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