Zacks: Maiden-Enstar deal works for both
Maiden Holdings' sale of its US reinsurance unit to a subsidiary of fellow Bermudian company Enstar Group makes sense for both companies, according to investment research company Zacks.
Maiden will receive net proceeds of $307.5 million for its Missouri-based subsidiary Maiden Reinsurance North America.
Enstar will operate the business in run-off. Last Wednesday, Maiden announced it had sold the business's reinsurance renewal rights to Transatlantic Re, which was also taking on the unit's underwriting team.
However, Maiden will be keeping all the business it underwrites from its head office in Bermuda, including its AmTrust business.
In a report published yesterday, Zacks stated: “The transaction will help Maiden enhance its financial flexibility, boost operational efficiency and support capital allocation for strategies, thereby creating a shareholder value.”
It added that Maiden will be able to accelerate profitability with the implementation of operational efficiencies and expense reductions for the rest of this year.
Zacks noted that Maiden's shares have plunged 42.4 per cent in the year to date, but that the transaction should improve the equity's prospects.
“We expect sustained operational performance and a robust capital position to turn the stock around in the near term,” Zacks added.
The deal was announced on Friday, when Lawrence Metz, Maiden's chief executive officer designate, said: “Today's announcement of the sale of MRNA represents another step in our continuing strategic review. This transaction will broaden our ability to manage and allocate capital as we move forward, and will create value for our shareholders.”
The transaction is expected to close in the fourth quarter of this year.
Enstar will assume approximately $1.3 billion of net loss and loss adjustment expense reserves and unearned premium reserves from Maiden's US Diversified business upon closing.
As part of the transaction, an Enstar subsidiary will novate and assume certain reinsurance agreements from Maiden's Bermuda reinsurer, including certain reinsurance agreements with MRNA.
Enstar is a run-off specialist, growing through acquisitions of insurance businesses and portfolios that have ceased writing new business, and managing their liabilities and assets.
The company has more than $15.2 billion in assets and a presence in the US, UK, continental Europe and Australia, as well as its head office in Queen Street, Hamilton.
Zacks' report stated: “With this buyout, Enstar Group will further strengthen its dominance in the market in closing legacy acquisitions and simultaneously ramping up its inorganic growth portfolio.
“The multiline insurer has acquired more than 80 companies and portfolios since its establishment in 2001, which goes to show that the recent consolidation is a strategic move to boost growth and the overall performance of the insurer.”
Enstar Group will finance the transaction with cash in hand as well as borrowings under its revolving credit facility.
Maiden's shares fell 3.8 per cent to $3.80 on the Nasdaq Stock Exchange on Friday after the deal was announced, while Enstar's shares were down 0.1 per cent at $213.50.
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