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CNA to access Lloyd's of London with Hardy Underwriting buy

CNA to access Lloyd's of London with Hardy Underwriting buy

HAMILTON, Bermuda—CNA Financial Corp.'s $227 million purchase of Hardy Underwriting Bermuda Ltd. will further CNA's specialty lines focus and give it access to Lloyd's of London, experts say.

Implemented by way of a merger under the Bermuda Companies Act, Chicago-based CNA last week announced the deal to purchase Hardy, which was established in 1975 and has operations in Bahrain, Guernsey, Singapore and the United Kingdom.

Hardy's business has centered around its Lloyd's syndicate 382, which underwrites marine and aviation, nonmarine property, property treaty, and specialty business.

“Hardy is a specialist insurer and reinsurer with a respected brand and a long and distinguished history of disciplined underwriting in the Lloyd's market,” CNA Financial Chairman and CEO Thomas F. Motamed said in a statement. “The proposed Hardy acquisition significantly expands CNA's global capabilities and aligns well with our specialized underwriting focus.”

The Hardy acquisition comes after several moves CNA made last year to reshape the scope of its business, including selling its ownership interest in First Insurance Co. of Hawaii and acquiring the minority shares of CNA Surety.

In a research note, Amit Kumar, vp and senior analyst of property/casualty insurance at New York-based Macquarie Capital (USA) Inc., said the deal makes sense in light of CNA's stated focus on key customer segments and specialized insurance products.

“CNA continues to make meaningful progress in its turnaround strategy, which has seen it put its non-P/C business in runoff, entered into a (loss portfolio transfer) with Berkshire Hathaway, reinstatement of common dividend, acquisition of remaining stake in CNA Surety, and sale of its Hawaii noncore P/C subsidiary,” Mr. Kumar wrote. “This proposed acquisition now puts the company on a "rebuilding its franchise' track.”

Patricia Kwan, associate director at New York-based Standard & Poor's Corp., said the cash deal is relatively inexpensive and gives CNA access into the Lloyds marketplace. “CNA won't be pouring a lot of extra capital into Hardy,” she said. “It will be a stand-alone business.”

In announcing the deal, Mr. Motamed said Hardy's leadership, including CEO Barbara Merry and Director of Underwriting Patrick Gage, would remain in place.

While Hardy's recent financial results were marred by natural catastrophe losses, the Hardy franchise “is built on a strong foundation and has a bright future,” Mr. Motamed said. Hardy reported a £42.1 million ($65.4 million) pre-tax loss for 2011

The deal also makes sense from Hardy's perspective, Ms. Kwan said. With higher capital requirements expected under the European Union's forthcoming Solvency II framework, many smaller companies active in the European markets are being forced to consider mergers and acquisitions.

Approved by the board of directors of both companies, the deal is still subject to the approval of shareholders and regulators, but is expected to be completed during the second quarter of 2012.