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Deal to buy Praetorian will more than double QBE's U.S. business


NEW YORK—QBE Insurance Group Ltd.'s agreement to buy New York-based Praetorian Financial Group Inc. for $800 million will significantly boost the Australian insurer's presence in the United States, QBE says.

QBE, which reached the agreement with Germany-based reinsurer Hannover Re Group to buy its recently created Praetorian, said it expects to finalize the acquisition in the second quarter of 2007 pending regulatory approvals.

Hannover Re launched Praetorian early this year to take over the specialty business of New York-based Clarendon Insurance Group Ltd., which Hannover purchased in 1998.

The acquisition of Praetorian includes Praetorian Insurance Co., Praetorian Specialty Insurance Co. and Redland Insurance Co.

Praetorian will add about $1.4 billion in gross premium income annually, QBE said. The figure includes about $200 million in fee-based "fronted" primary insurance, which QBE said it expects to cancel. The acquisition of Praetorian will more than double QBE's business in the United States. According to QBE's financial statements for 2005, the gross premium income for the Americas division was just over $1 billion.

Praetorian writes 37 specialist property/casualty insurance programs, 78% of which is written by managing agents and 22% through brokers, QBE said.

Rod Fox, chief executive officer of Praetorian, said in a statement that Praetorian will continue to focus on specialty markets.

"Over the past year, Praetorian has made significant strides in strengthening and refining the company's operational capabilities," Mr. Fox said. "The combination with QBEÖwill build on those successes while allowing us to offer a broader range of products and maintain continuity in client relationships."

Tim Kenny, president and CEO of QBE's New York-based Americas division, said the acquisition is in line with QBE's U.S. goals.

"The acquisition is consistent with our strategy of building our business in the specialist insurance program and small to medium regional markets of the U.S.," Mr. Kenny said in a statement. "It follows the successful acquisitions of National Farmers Union Property & Casualty Co. in 2005 and the One Beacon Agriculture division earlier this year."

Following the announcement, Oldwick, N.J.-based A.M. Best Co. Inc. issued a statement that QBE would maintain its financial strength rating of A pending a review of the acquisition "with negative implications." Praetorian Financial Group and its members also maintained an A- rating pending a review "with developing implications."

David Blades, an Oldwick, N.J.-based analyst with Best said, Praetorian stands to benefit from the acquisition. "If you look at the commitment of the (new) parent company, their commitment to the specialty market will be beneficial for Praetorian."

Hannover Re is a strong company, Mr. Blades said, but is one that wants to focus on its mainstream businesses.

In its statement, Hannover said it intends to use capital freed by the sale of Praetorian to beef up its core property/casualty and life/health reinsurance businesses.

Praetorian Financial Group Inc.

Annual gross premium: $1.4 billion

Subsidiaries: Praetorian Insurance Co., Redland Insurance Co., and Praetorian Specialty Insurance Co.

Focus: Primary insurance coverage to small and mid-sized accounts with emphasis on specialty business. Underwrites 37 specialty insurance programs covering:

  • Commercial auto 22%
  • Commercial casualty 22%
  • Workers compensation 22%
  • Fronted business 13%
  • Commercial property 12%
  • Specialty auto 10%