Property/casualty insurance industry merger news continued late last week with Ironshore announcing that its deal to acquire an Australia specialist fell apart, while Tower got an assurance that its deal with ACP Re will continue for now.

In addition, Endurance Specialty Holdings and Aspen Insurance Holdings continued their sparring. Each sent letters to Aspen shareholders urging them to vote for or against Endurance’s proposals for special meetings and increased board size—all part of Endurance’s effort to acquire Aspen for $49.50 per share. See related article, Aspen Tells Shareholders To Snub Endurance’s New M&A Overtures.

Deal Over

In sharp contrast, the Ironshore deal, which seemed quite amicable back in February when it was first announced that the Bermuda-based company would buy acquire of the shares of Assetinsure Holdings Pty Limited, was called off with few details on what killed the deal except that the decision not to proceed was based on a mutual agreement between the parties.

Assetinsure Holdings Pty Limited is the parent company of Assetinsure Pty Limited, a specialist insurance company in Australia providing surety, aviation, credit and property insurance.

The transaction was announced in February this year, but remained subject to customary closing conditions. At the time of the announcement, Ironshore CEO Kevin Kelley said that Assetinsure’s established insurance platform would allow Ironshore to expand within the region.

A February article from an Australian publication (InsuranceNews) posted on Ironshore’s website described the acquisition at the time as having “more of the spirit of a wedding about it than a takeover,” noting that Assetinsure also hoped to grow—and to benefit from Ironshore’s A.M. Best rating of “A.”

On June 27, the news was different.

“Both parties agreed that it was not in their best interests to continue with the transaction after extensive discussions,” Mark Wheeler, chief executive officer of Ironshore International Limited Ironshore said in a statement. “We wish Assetinsure well in its future endeavors,” he said, without further explanation.

Two days earlier, Ironshore announced that it increased in another surety specialist—this one in the United States—upping its ownership of Lexon Surety Group to 20 percent. The boost was made pursuant to an option that Ironshore received as part of its initial investment in Lexon in 2013.

Lexon writes over $100 million in direct premiums annually and is the 12th largest writer of surety bonds in the United States, according to Ironshore, which said that Ironshore’s insurance subsidiaries would continue to provide quota-share reinsurance and a primary fronting facility on new and renewal business for most types of U.S. commercial and contract surety risks.

Deal Continues

In separate developments at Tower Group International, a letter from a Tower representative to ACP Re. Ltd.—the entity that agreed to a merger with Tower back in January—suggested that the deal might be in jeopardy. The June 26 letter, signed by Elliot S. Orol, general counsel, was disclosed in an 8-K filing with the Securities and Exchange Commission on Friday.

“Various of your representatives have orally suggested to us that an unwaived Insolvency Event has or may have occurred,” the letter said referring in an event defined under Section 6.02(f)(i) of the merger agreement and the possible event being an “Amended Order of Administrative Supervision of the Massachusetts Insurance Department dated May 20, 2014.”

“We do not believe that any such Insolvency Event has occurred. Tower intends to satisfy all conditions to closing the Merger applicable to Tower,” going on to request that ACP Re, Ltd. “unequivocally assure Tower in writing of its commitment” to close the deal.

A letter dated June 27 from a lawyer representing ACP Re provided the response.

“ACP Re will comply in all respects with its obligations under the parties’ Merger Agreement. ACP Re reserves all its rights under the Merger Agreement, with respect to the matters referenced in your letter or otherwise,” said the letter, which was also attached to the SEC filing.

The Insolvency Event clause of the merger agreement referenced in Orol’s letter describes an event in which “a governmental authority files any petition or commences any case or proceeding… relating to insolvency, bankruptcy, rehabilitation, liquidation, conservatorship, supervision, receivership or reorganization…..”

In its most recent quarterly financial filing 10-Q, Tower described the May 20, 2014 action by the Massachusetts Department of Insurance (MDOI) in a list of regulatory actions and enhanced reporting requirements from the New York State Department of Financial Services (NYDFS), the Illinois Department of Insurance, the Maine Bureau of Insurance, the New Jersey Department of Banking and Insurance, the Ohio Department of Insurance and the Bermuda Monetary Authority related to operating subsidiaries in those jurisdictions. The MODI action was an “amended order of administrative supervision” with respect to two of Tower’s insurance subsidiaries, the 10-Q says.

Terms of the MODI order subject Tower’s Massachusetts insurers to enhanced reporting requirements and restrict them “from selling or encumbering assets or incurring debt, making material changes in management, entering into employment agreements, [and] writing any new business other than policies that are 100 percent reinsured to affiliates of AmTrust and NGHC [National General Holdings Corp.] pursuant to…cut-through reinsurance agreements” in place.

(Editor’s Note:The controlling shareholder of ACP Re is a trust established by the founder of AmTrust, National General, and Maiden Holdings. Under terms of the Jan. 3 merger deal, AmTrust acquired renewal rights to Tower’s commercial lines business and provided cut-through endorsements on commercial business; National General, on personal lines business.)

The Massachusetts insurers also cannot pay dividends, change investment practices, enter into new reinsurance agreements and or increase compensation of officers or directors without the MDOI’s consent, the filing says.

With respect to writing new business, the filing notes that “substantially all of the new business production of the Massachusetts insurers is reinsured pursuant to the cut-through reinsurance agreements,” suggesting therefore that the order should have no material impact on the ability of the Massachusetts insurers to continue to write new business.

Finally, the order required Tower to submit “a preliminary operations plan no later than June 1, 2014.” The plan was supposed to include detailed information describing the steps the company is taking to enable it to repay its convertible senior debt holders and continue operations as a going concern in the event its pending merger with ACP Re does not occur.

Tower said it engaged Greenhill & Co., LLC for advice on repaying the debt (5.00% convertible senior notes due September 2014) and submitted the required plan on May 29, 2014.

Since January, terms of the merger deal have also been amended, with the per-share consideration dropping from $3.00 per share to $2.50 per share and the target completion date set at Nov. 15 instead of Sept. 30 as originally contemplated.

Tower’s General Counsel Orol noted in last Thursday’s letter to ACP Re that Tower confirmed to MDOI last week that it would immediately contribute $3 million to its wholly owned subsidiary, Massachusetts-domiciled Tower National Insurance Company, increasing TNIC’s policyholders’ surplus via a surplus note and raising it to a level exceeding the minimum required capital and surplus level.

For Tower overall, a June 20 amended 10-Q filing revealed that shareholders equity stood at $34.0 million as of Mar. 31, 2014 (down from $100.7 million at Dec. 31, 2013). The group reported a combined ratio of 161.8 for the three months ended Mar. 31, 2014, and a bottom-line net loss of $51.9 million.

Topics Mergers & Acquisitions USA Reinsurance Massachusetts Australia