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Enstar enters recapitalization agreement ahead of StarStone deal

18th August 2020 - Author: Matt Sheehan

Bermuda based insurance, reinsurance and run-off specialist Enstar Group has entered into a recapitalization agreement ahead of its previously announced exchange transaction involving Atrium & StarStone US.

enstarLast week, Enstar announced that it plans to grow its interest in StarStone US by exchanging a part of its holding in Northshore Holdings Limited, held through Enstar’s subsidiary, Kenmare Holdings Ltd.

The company will offer its interest in Northshore to Trident V, L.P. and its affiliated funds managed by Stone Point Capital, in return for all of the funds’ interest in StarStone US.

This transaction is conditioned upon the closing of the previously announced recapitalization of StarStone US, pursuant to which a new management team and board of directors will be appointed.

But now Enstar has agreed to a further recapitalization deal, under which it will work with the Trident V Funds to attempt to segregate certain collateral arrangements at Lloyd’s for the Atrium business that are currently operated jointly with the collateral arrangements at Lloyd’s for StarStone International’s Lloyd’s Syndicate 1301 and Enstar’s run-off Lloyd’s Syndicate 2008.

Liberty Mutual Reinsurance

Atrium Underwriting Group Limited and its subsidiaries and Arden Reinsurance Company Ltd. are wholly owned subsidiaries of Northshore, which is one of the subjects of the exchange.

The recapitalization agreement also provides for a preferred return to Kenmare of any cash received upon the sale of StarStone US to reimburse it for certain funding provided to one of the Fitzwilliam Cells.

Northshore is 92% owned by North Bay Holdings Limited, which also owns the preferred equity of three segregated cells of Fitzwilliam Insurance Limited that have provided reinsurance to StarStone Insurance Bermuda Limited (SIBL) and are considered part of the StarStone International portfolio.

The agreement further provides that StarStone Specialty Holdings Limited (SSHL) will contribute capital to one of the Fitzwilliam Cells if necessary for such cell to perform its reinsurance obligations to SIBL.

In connection with the closing of the exchange transaction, Kenmare will enter into amended and restated shareholders’ agreements with the Trident V Funds and the Dowling Funds with respect to their investments in SSHL and Northshore.

Additionally, if the StarStone US transaction closes, but the exchange transaction with the Trident V Funds does not close, Enstar, Kenmare and the Trident V Funds will provide the Trident V Funds with certain rights related to Core Specialty, a newly formed entity that agreed to buy purchase StarStone US back in June.

These include the right to appoint one of the two directors that, following the closing of the StarStone US transaction, a subsidiary of Enstar has the right to appoint to the board of directors of Core Specialty.

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