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Liberty Mutual expands specialty, international business with Ironshore buy

Posted On: Dec. 6, 2016 7:45 AM CST

Liberty Mutual Insurance Co.’s acquisition of Ironshore Inc. will boost the mutual insurer’s specialty and international business and resolve rating agencies’ credit concerns related to Ironshore’s existing owner, experts say.

Liberty Mutual said Monday it will buy Ironshore Inc. from Chinese conglomerate Fosun International Ltd. for about $3 billion.

Hamilton, Bermuda-based Ironshore is a specialty and surplus lines insurer with gross premiums written of $2.2 billion in 2015. The company has 800 employees located in 15 countries.

Ironshore is the sixth-largest U.S.-based surplus lines insurer with $1.01 billion in nonadmitted premiums, according to Business Insurance’s latest ranking. Liberty Mutual's existing surplus lines operation, Liberty Insurance Surplus Corp., reported $342.2 million in nonadmitted premiums in 2015.

Ironshore was established in 2006 and is headed by Kevin H. Kelley, who previously was a long-time senior executive at Lexington Insurance Co., the main surplus lines unit of American International Group Inc.

Fosun bought 20% of Ironshore in February 2015 and bought the remaining 80% in November of the same year. The purchase prompted a regulatory probe by the Committee on Foreign Investment in the United States, which monitors purchases of U.S. businesses by foreign organizations to determine whether they could affect national security.

While the reason for the probe was not disclosed, Ironshore owned Wright USA, an insurance agency and third-party administrator principally providing professional liability coverage to federal employees as well as disability, life, dental and other coverages to federal employees. The unit was sold to Starr Cos. in September.

Fosun International announced in June that it would spin off Ironshore. Ironshore raised $100 million in an initial public offering in July.

Liberty Mutual will acquire a 100% ownership interest in Ironshore, and the transaction is expected to close in the first half of 2017, Liberty Mutual said in a statement Monday. Mr. Kelley and the Ironshore management team will join Liberty Mutual.

Ironshore will operate with the same brand, but as part of the larger Liberty Mutual organization, which is working to grow its specialty lines operations, according to the statement.

“Ironshore has a track record of profitably underwriting global and diverse specialty risks insurance and is an ideal complement to Liberty Mutual, providing additional scale, expertise, innovation and market relationships to our $5 billion global specialty business,” said David H. Long, Liberty Mutual chairman and CEO, in the statement.

Rating agency Standard & Poor's Corp. said in a statement that "Ironshore could elevate Liberty Mutual's presence in the U.S. excess and surplus lines market, and the acquisition is consistent with the group's long-term strategy to increase its specialty bandwidth."

The purchase will also increase Liberty Mutual’s international business. According to its IPO filing earlier this year, Ironshore’s gross written premium is split: 64.8% U.S. business, 27.6% International and 7.6% Bermuda.

According to the filing, 60.5% of Ironshore’s book is casualty, 20.5% is short-term specialty and 19% is property.

“I think Liberty Mutual is an important player,” said Etti Baranoff, associate professor of insurance and finance at Virginia Commonwealth University in Richmond, “and it was a question of time to see where are they looking for ways to grow through merger and acquisition. To me, it was expected, knowing Liberty Mutual’s model. They want to be more global and international and this fits their culture.”

The deal will also ease rating agency concerns of over Ironshore’s current parent, the acquisitive Fosun, which has expanded rapidly over the past several years.

Ratings agency A.M. Best Co. Inc. said it in a statement that it views the deal as a positive for Ironshore, “as it will resolve any potential concerns associated with the credit profile and financial leverage position of its current parent, Fosun.”

“However,” the statement continued, “should the transaction not be completed as planned and Ironshore remains exposed to these financial pressures, negative rating actions could occur, depending on the exact circumstances surrounding the desolation of the pending acquisition agreement.”