Hardy’s sale a relief for shareholders

Hardy’s shareholders must be breathing a sigh of relief that the purchase by US insurer CNA is almost complete.

Hardy revealed today that the £143m acquisition has cleared all the necessary regulatory hurdles, bar receiving a certificate of merger from the registrar of companies in Bermuda, where Hardy is domiciled.

The news closely follows the revelation that the company has shed two of its senior underwriters after deciding to refocus its property-treaty reinsurance division away from the international (in other words non-US) business that got it into the state it now finds itself in.

This additional drastic action, on top of the swingeing cuts Hardy had already made to its international property-treaty business, sheds new light on the extent of the company’s troubles. It indicates there was a risk of more problems to come from international property-treaty. Had shareholders not agreed to sell to CNA, they may have been saddled with the aftermath.

Also, while Hardy insisted that it, rather than its soon-to-be parent, took the decision to refocus the property-treaty book, the question has to be asked whether Hardy would have taken such stern measures if it were it not being bought by a vigilant US insurance powerhouse.

Furthermore, as Novae chief executive Matthew Fosh has pointed out before, the stock market is no place for the smaller Lloyd’s companies. Hardy will be much better off nestled within the CNA empire.  

Shareholders are probably also relieved that CNA is pressing ahead with the deal despite these latest developments. As part of its refocus, Hardy is suspending underwriting at its Singapore-based Asian operation, from where many of the losses that hit Hardy in 2010 and 2011 came, and so on the surface it appears that CNA is getting less than it paid for.

CNA is paying 280p a share for Hardy, a large premium on the Lloyd’s insurer’s 2011 net tangible asset value per share of 183.5p.

So has it paid too much? Difficult to say, as much will rely on Hardy’s future performance. However the recent announcements will not be much of a blow to CNA. Hardy stressed that it is not scrapping its (relatively new) Singapore operation, merely holding fire while it considers the next steps and hires someone new to lead it. It also said that the cuts aim to reduce exposure rather than earnings, and is looking to hire a new US underwriter to increase the proportion of business coming from this location.

It is also important to remember that before the difficulties in 2010 and 2011, which were caused by an unprecedented amount of catastrophe activity in the very markets that Hardy had chosen to play in most, Hardy was one of the darlings of the market in terms of underwriting prowess. As long as it charges the right price for the new US business it is writing, there is no reason Hardy cannot hit those heights again.