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Enstar’s Clarendon agrees LPT & ADC reinsurance agreement with StarStone US

12th June 2020 - Author: Luke Gallin

Clarendon National Insurance Company, a wholly-owned subsidiary of Enstar, is to enter into a loss Portfolio Transfer (LPT) and Adverse Development Cover (ADC) reinsurance arrangement with StarStone US.

handshakeEnstar announced yesterday the recapitalisation of StarStone US, revealing plans for a push back into the property and casualty (P&C) insurance markets, with a focus on excess and surplus (E&S) business.

The company has now provided some more details on the previously announced recapitalisation and related reinsurance agreements, following the entry into a material definitive agreement.

Under the purchase agreement, StarStone Finance and North Bay Holdings entered into a stock purchase agreement with Core Specialty Holdings, a newly formed entity with equity backing from funds managed by private equity firms SkyKnight, Dragoneer, and Aquiline. Enstar owns an indirect 59% interest in StarStone Finance and North Bay.

In accordance with the purchase agreement, StarStone Finance has agreed to sell its interest in StarStone US, with the purchase price based on a $30 million premium to the GAAP tangible book value of the acquired companies at the most recent calendar month end prior to the closing, and will consist of $235 million of common shares of buyer and cash.

As announced yesterday, funds committed by the three private equity investors amounts to $610 million, with the proposed management team of Consolino and Noonan committing a further $20 million of equity capital to Core Specialty.

In relation to the purchase agreement, Enstar’s Clarendon is to enter into an LPT and ADC reinsurance arrangement with StarStone US, which is comprised of StarStone Specialty Insurance Company, and StarStone National Insurance Company.

Under the reinsurance agreement, Clarendon will “reinsure all ultimate net loss of the StarStone U.S. Insurance Companies incurred in respect of premium earned prior to the end of the most recent calendar month prior to the closing.”

In return, Clarendon is set to receive a reinsurance premium equivalent to the GAAP net reserves for such liabilities as of such date, as finally determined under the purchase agreement, in addition to around $16 million. Enstar explains that the reinsurance agreement between the pair includes an aggregate limit on Clarendon’s liability equal to $130 million in excess of the valuation date reserves.

Furthermore, Enstar is to guarantee all of Clarendon’s obligations under the reinsurance agreement.

Enstar continues to explain that upon closing, one of its wholly-owned subsidiaries is to enter into an administrative services agreement with the StarStone US companies, under which the subsidiary will administer the policies reinsured under the above-mentioned reinsurance agreement.

Additionally, StarStone Finance will enter into a stockholders agreement with Core Specialty and its other shareholders at the closing, which provides for its right to designate two members to Core Specialty’s Board of Directors.

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