Hanover to sell Chaucer to China Re

The Hanover Insurance Group, Inc. has agreed to divest its three wholly owned subsidiaries to China Reinsurance (Group) Corporation for USD950 million, according to a statement in the Nasdac website. The divestment is intended to intensify the company’s focus on domestic expansion. Shares of the company have lost four percent in the last couple of trading sessions.

The Hanover’s three subsidiaries, namely The Hanover’s Insurance International Holdings Ltd., The Hanover Australia Holding Company Pty Ltd and Chaucer Insurance Company Designated Activity Company are collectively called Chaucer. The sell-off is expected to culminate late in 2018 or the first quarter of 2019, subject to closing conditions.

The purchase consideration consists of USD865 million cash from China Re (includes contingent consideration of up to USD45 million) and a pre-signing dividend of USD85 million from Chaucer. The dividend amount has already been received in the second quarter. The total amount, adjusted for the pre-signing dividend, translates into a multiple of 1.66 times Chaucer’s tangible equity of USD520 million as of Jun 30, 2018. Also, risks and rewards of Chaucer’s business from April 1, 2018 till closing are transferred to China Re.

China Re will have to pay a break fee of USD57 million if the transaction falls apart.

The divestiture follows The Hanover’s strategic review and its focus on widening the domestic property and casualty business portfolio. The divestiture will allow the company to continue pursuing its objectives of rapid extension of specific abilities in commercial lines businesses as well as consistent progress and penetration into the personal lines and small commercial sectors.  Also, the company should be able to lower catastrophe exposure to extreme global events as well as enhance its financial flexibility.