BIL sale will boost Brit’s capital flexibility - Cloutier

Brit’s sale of Brit Insurance Limited (BIL) to run-off company RiverStone will free up capital and thus improve Brit’s flexibility, according to chief executive Mark Cloutier.

The deal will also free up Brit’s management to focus more of their time on the company’s core global specialty business.

As an FSA-regulated legal entity, BIL had to hold enough capital to meet both regulatory and rating agency requirements, Cloutier explained.

“This sale will release capital that is in the insurance company, which will give us significant additional capital flexibility,” he told Insurance Times.

According to a release from Riverstone’s parent, Canadian insurance conglomerate Fairfax, RiverStone will pay around $300m (£191m) for BIL. This compares with a book value of roughly $530m. Brit is retaining some of BIL’s assets and liabilities because of the connection they have with the continuing business written at its Lloyd’s operation, Syndicate 2987.

Cloutier estimates that Brit is keeping around a third of the firm, with the remaining two-thirds transferring to RiverStone.

The sale means Brit is now a Lloyd’s only underwriter. While a number of Brit’s rivals have a dual structure, in which they run an FSA-regulated company alongside their Lloyd’s operations, Cloutier said such a structure was not necessary for Brit to achieve its aims.

“The strength of Lloyd’s is the international licences and the fact that the buyers of specialty insurance and reinsurance come to Lloyds to transact that business,” Cloutier said. “In our mind having the UK regulated company, given our strategy, wasn’t mandatory.”

Cloutier said the sale will also allow Brit management to focus more on running the continuing business. “There are now no distractions relating to discontinued businesses,” he said.

He added that as part of the transaction, BIL staff would transfer to RiverStone. “Their stated intention is to take the people across.”

RiverStone faced competition to buy BIL, but Cloutier settled on the company in part because it is part of Canadian insurance conglomerate Fairfax, and as such is a run-off business situated within a ‘live’ insurance environment.

“RiverStone seem to me to be a logical home for this particular business because it has an association with an active business.”

While Brit sold the BIL assets to RiverStone at a discount to book value, it asserts that the combination of the RiverStone and QBE deals allowed it to receive a premium to book value for its BIL and UK books.