OneBeacon Insurance Group Ltd. said it is making progress in the sale of its runoff business to Armour Group Holdings Ltd. and restated its expectation that the transaction will close in the second half of 2014.
The company said there has been progress is the regulatory approvals by the Pennsylvania Insurance Department, which will hold a public hearing on July 23, 2014 as part of its normal review of the proposal.
As context for the public hearing, Armour has filed with Pennsylvania regulatory officials a proposed closing balance sheet that includes $80.9 million of seller financing in the form of surplus notes, as provided for in the stock purchase agreement.
In support of the proposed closing balance sheet, the company and Armour recently amended the stock purchase agreement, primarily to increase the cap on the seller financing by $6.7 million and to extend the termination date to year-end 2014.
“We are in agreement with the updated closing balance sheet, which includes $81 million of seller financing in the form of surplus notes,” said OneBeacon CEO Mike Miller. “We remain focused on proceeding through the regulatory approval process and look to close the sale in the second half of 2014.”
In October 2012, OneBeacon said it would transfer to Armour certain legal entities within the OneBeacon group, which will contain the assets, liabilities (including gross and ceded loss reserves) and capital supporting the runoff business, as well as certain elements of the runoff business infrastructure including staff and office space.
The runoff business includes non-specialty commercial lines and other legacy runoff business. As of Sept. 30, 2012, the gross reserves associated with the runoff business were in excess of $2.2 billion.
Armour is a Bermuda-based group of companies formed in 2007. It includes licensed insurers and reinsurers as well as specialized service companies.
Miller said in 2012 that the sale of the runoff business is the “final step” in OneBeacon’s transformation to a pure specialty company.
“This complete exit from our legacy liabilities is a major step in that transition. The charge associated with the sale, while significant on a GAAP basis, is in line with our view of the economics of running off the liabilities over time. Importantly, this transaction will free up over $100 million of capital, net of the loss on the transaction, further enhancing our financial flexibility and allowing us to focus our full attention on building on our already high-performing specialty results,” Miller said.
The transaction was originally expected to close in 2013.