Tower Group, a provider of property and casualty insurance products and services, and CastlePoint Holdings, a provider of insurance solutions, have announced that CastlePoint Reinsurance Company, a Bermuda-based subsidiary of CastlePoint, has entered into a definitive agreement to acquire Hermitage Insurance Group.
CastlePoint will pay the seller, a subsidiary of Brookfield Asset Management, $27 million in cash plus the adjusted closing book value of Hermitage. The total cash consideration is expected to be approximately $135 million with no external financing required.
Earlier in August 2008, Tower has entered into a definitive agreement to acquire CastlePoint and they expect to close that transaction in early December 2008. Tower and CastlePoint expect that the acquisition of Hermitage will close in late December 2008, after the closing of the Tower-CastlePoint acquisition.
Tower and CastlePoint have also entered into a separate agreement pursuant to which, following CastlePoint’s acquisition of Hermitage, Tower has agreed to buy Hermitage’s operating assets including rights to policy renewals and producer appointments from CastlePoint for $16 million in cash.
Tower and CastlePoint do not expect to consummate this renewal rights transaction unless Tower’s acquisition of CastlePoint is not consummated or is delayed. If this renewal rights transaction were to close, Tower and CastlePoint have also agreed to extend all of the reinsurance, management and service agreements between the two companies or their respective subsidiaries for one additional year upon their expiration, currently scheduled for March 31, 2010, at commission and management fee terms which have been set to approximate current market terms, provided that, under certain limited circumstances, the extension will be for six months.
Michael Lee, chairman and CEO of both Tower and CastlePoint, said: Through this transaction, Tower and CastlePoint will be able to acquire a very profitable business similar to Tower’s business by utilizing CastlePoint’s capital. In addition, CastlePoint will be able to shift more of CastlePoint Reinsurance Company’s capital from reinsurance to insurance in response to current market conditions.