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NEW YORK-Constitution Reinsurance Corp. is exploring the possible sale or restructuring of its casualty facultative operation.
The New York-based company, which ranks as the 14th-largest U.S. reinsurer based on net reinsurance premiums, has hired investment bank Goldman Sachs & Co. to prepare a possible sale of the operation, which accounts for less than 5% of its business.
Other options the reinsurer is considering include restructuring and folding the facultative operation into the treaty unit.
Bard Bunaes, chairman and chief executive officer of New York-based Constitution Re, would only say that selling the casualty facultative division is a possibility and that the company is "still in the process of determining what to do." He referred further questions to Goldman Sachs, which declined to comment.
Michael Smith, a director with Salomon Brothers in New York, said a sale would have minimal impact on the reinsurance market, as Constitution Re is not a large player.
"You have one small company deciding not to be a factor in the business," he said. "It won't affect the market at all."
Constitution Re is known as a solid company that writes non-standard automobile reinsurance and treaty reinsurance for various casualty and property lines.
Speculation by analysts over a potential buyer for the operation has centered on Stamford, Conn.-based TIG Reinsurance Co. and Chicago-based CNA Reinsurance Co. Both TIG Re and CNA Re started new facultative reinsurance operations in November, with TIG Re hiring 18 casualty facultative underwriters from Munich American Reinsurance Co. (BI, Oct. 21, 1996).
Buying the Constitution Re department would help a reinsurer
starting a facultative operation, one reinsurance intermediary said.
"Here you have Constitution, which may not necessarily be focusing its resources on the casualty facultative side, and maybe it's not performing as well as they might like," making a sale sensible, the intermediary said.
Xerox Corp. sold Constitution Re for $400 million in December 1994 to Exor America, a subsidiary of Exor Group of Luxembourg Inc. (BI, Dec. 26, 1994). Constitution Re wrote $558.6 million in net premiums in 1995.
For the first half of 1996, the company wrote $258.2 million in net premiums and had a policyholder surplus of $338.7 million. The reinsurer's combined ratio stood at 104.2% in 1995 and dropped to 102.8% for the first half of 1996. In 1995, facultative reinsurance represented only 3.8% of Constitution Re's business.
One analyst, Peter Wade, a vp with Lehman Bros. in New York, regarded it as unusual that Constitution Re would consider selling the unit. "It seems strange for a company to say 'We cannot make a go of it and let's get out,'" he said.
Perhaps they are considering selling because casualty facultative is a small piece of their business, while it has relatively high operating costs, Mr. Wade speculated.