Hamilton Acquires Pembroke Managing Agency and Ironshore Europe

Bermuda-based Hamilton Insurance Group, Ltd. (Hamilton), is set to acquire Liberty Mutual Group's (Liberty) Pembroke Managing Agency Limited (Pembroke) platform at Lloyd's and its Dublin-based Ironshore Europe DAC (IEDAC) business.

Hamilton said the transaction will almost double its total premium base while helping it to establish a leadership position in specialty insurance and expand its reinsurance franchise. Hamilton's existing insurance and reinsurance operations are in Bermuda and at Lloyd's.

"Given our objective of building a global, diversified specialty insurance and reinsurance organization, our agreement with Liberty is a meaningful step towards achieving that goal," said Hamilton CEO Pina Albo, who joined Hamilton from Munich Re last January.

She continued, "In addition to the opportunities this transaction presents at Lloyd's, in Europe, and in the US, we will bring together talented teams who are aligned on culture, underwriting discipline, and a commitment to providing superior customer service."

The transaction is expected to be completed in the fourth quarter of 2019 pending regulatory approval.

Pembroke was formed in 2004 and underwrites a portfolio of specialty insurance products including Financial Institutions, Global Property, and Professional Liability through Syndicate 4000 at Lloyd's. Hamilton is also purchasing a Lloyd's corporate member from Liberty, specially formed to support the 2019 year of account of Syndicate 4000. Pembroke also has tenancy rights for Lloyd's Syndicate 2014 (Acappella) and provides turnkey solutions for Acappella and Lloyd's Syndicates 1947 (GIC Re) and 6125 (Patria Re).

IEDAC was formed in 2010 in Dublin, Ireland, by Ironshore and is authorized to write business throughout the European Economic Area and carries licenses to write business as a (re)insurer in a number of other countries worldwide. The company is also listed on the US National Association of Insurance Commissioners International Insurer Directory, allowing it to provide capacity in the United States.

KBRA Affirms Hamilton's Rating

Following the announcement, Kroll Bond Rating Agency (KBRA) affirmed the insurance financial strength rating (IFSR) of A for Hamilton Re, Ltd. (Hamilton Re), a class 4 Bermuda specialty reinsurer. KBRA also affirmed the issuer rating of BBB+ for the organization's ultimate holding company, Hamilton Insurance Group, Ltd. (Hamilton Group). Hamilton Re and Hamilton Group are collectively referred to as "Hamilton." The Outlook for both ratings is Stable.

The ratings reflect the fact that the 2018 results for Hamilton are in line with KBRA's expectations, as well as the strategic benefits to be provided by the announced acquisition. The announced transaction is consistent with Hamilton's strategic vision to grow—both organically and inorganically—as a global specialty insurer and reinsurer.

The acquisition will roughly double the size of Hamilton's premium base and diversify its underwriting portfolio with low volatility and high-quality specialty business. Additionally, Hamilton will earn fee-based income from managing third-party Syndicates, which will reduce earnings volatility and enhance overall returns.

KBRA believes the transaction will materially enhance Hamilton's presence at Lloyd's as well as provide it with a Dublin-domiciled insurer with a UK branch. The non-Lloyd's platform provides Hamilton with primary insurance capabilities in the European Union as well as in the United States, including US excess and surplus lines licenses. KBRA expects the transaction to have a slightly favorable impact on Hamilton's earnings in 2020, with significant accretion thereafter. Moreover, KBRA does not expect Hamilton's financial leverage to increase materially as the proposed acquisition is to be funded mainly with internal resources.

To the fullest extent possible, the proposed acquisition is structured so that Liberty Mutual Group retains responsibility for prior year business at both Lloyd's and the Dublin-domiciled insurer, thereby reducing uncertainty surrounding prior year reserve development for Hamilton. The trade-off for Hamilton is reduced underwriting revenue in 2019 and 2020 due to the time required to restore earned premium levels within the acquired business.

Balancing these strengths is significant execution risk for planned business initiatives, including integration of the newly acquired entities upon closing and further development of Hamilton's capital markets capabilities, partially offset by management's proven track record in merger-and-acquisition execution and integration.

The Stable Outlook reflects KBRA's expectation that, in addition to successful integration of Pembroke and IEDAC post-closing, Hamilton will continue to maintain sound capitalization while prudently executing its business plan. Additionally, KBRA expects Hamilton Re to maintain sufficient liquidity to cover projected liability cash flows.