A stock purchase agreement provides a Bermuda-headquartered group that hit the ground running a little more than a year ago with an opportunity to execute its strategy of sourcing, structuring and servicing runoff business.
Documents filed recently in the Cook County, Ill., Court of Chancery show that a U.S. affiliate of Premia Holdings Ltd. has agreed to acquire the outstanding stock of rehabilitating commercial lines insurer Public Service Insurance Co. in a transaction that involves the transfer of total net reserves of $153.8 million.
The receiver for Public Service Insurance, a former writer of workers' compensation, commercial multiperil and certain other lines of business, previously attempted to execute a loss portfolio transfer with Catalina Holdings (Bermuda) Ltd.'s SPARTA Insurance Co. When that transaction fell through, documents show, the receiver directed financial adviser Griffin Financial Group LLC to conduct a second auction. That process yielded two proposals, and the receiver concluded that the structure proposed by Premia represented the better option for avoiding an immediate liquidation of Public Service Insurance's liabilities and maintaining the greatest value of assets in the receivership estate to settle claims of non-policyholder creditors.
Terms of the deal, according to the Aug. 26 stock purchase agreement, call for Premia to take on Public Service Insurance's liabilities through an acquisition of all of the insurer's outstanding stock for consideration at closing of $2.5 million with contingent consideration of an additional $4.4 million based on its success in collecting on reinsurance recoverables. Premia intends to recapitalize Public Service Insurance to a risk-based capital level of at least 300%, provide the insurer with the necessary liquidity to discharge the policyholder liabilities, extend reinsurance coverage and assume the administrative costs associated with the runoff process.
The receiver argued that the deal will "better protect the interests and expectations of policyholders" relative to an alternative scenario in which Public Service Insurance remained in rehabilitation.
Documents did not reveal the identities of the other parties that expressed interest in Public Service Insurance during the second auction process. During the first auction, the receiver previously disclosed that Armour Group, now known as Trebuchet Group Holdings Ltd., along with Enstar Group Ltd. and Sirius International Group Ltd., joined Catalina in bidding on the business.
Backed by Arch Capital Group Ltd. and Kelso & Co. LP, Premia made its first splash with the July 2017 news that Premia Reinsurance Ltd. agreed to provide up to $1.03 billion in adverse development cover to AmTrust Financial Services Inc. in exchange for $675 million in premium. Premia Re boasted total initial capitalization of $500 million; it ended 2017 with total shareholders' equity of $517.4 million.
The new reinsurer generated $811.1 million in net premiums written and earned in 2017, according to its income statement for the year as filed with the Bermuda Monetary Authority. Kroll Bond Rating Agency said in a February rating report that the company's level of premium volume in its first year had been "significantly over plan" and established "a solid foundation."
In addition to the high-profile AmTrust deal, Premia Re entered a retroactive reinsurance agreement with GuideOne Mutual Insurance Co., effective Sept. 30, 2017, that provided an aggregate coverage limit of $240 million in loss and loss-adjustment-expense reserves in three specific sections, with a particular focus on the cedant's for-profit senior living community business from accident year 2012 through the first half of accident year 2017.
GuideOne stopped providing liability coverage for senior living communities, including both for-profit and not-for-profit communities, effective July 5, 2017, later saying that the business had been "very unprofitable." The premium paid by GuideOne totaled $181.5 million, and Premia Re said it ceded 25% of the transaction to Arch Reinsurance Ltd.
The February Kroll report showed that workers' comp and general liability business combined to account for 83.3% of Premia Re's booked loss reserves as of Sept. 30, 2017. Workers' comp accounted for 78.7% of the Public Service Insurance net reserves subject to the transaction. The company blamed four years of significant adverse reserve development in the years leading up to its rehabilitation in part on its business in the California market, where it had grown quickly between 2008 and 2013. It was placed in rehabilitation in March 2017.
Meanwhile, Premia recently enhanced the scope of its capabilities by buying Boston-based international claims, audit and risk management advisory firm Alan Gray LLC. The company said upon announcing that deal on Sept. 12 that it is "well-equipped" to handle acquisitions and reinsurance transactions in the global runoff market.