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XL Group P.L.C. said Thursday that XL Insurance (Bermuda) Ltd has entered into a definitive agreement to sell its wholly-owned subsidiary, XL Life Reinsurance (SAC) Ltd. to GreyCastle Holdings Ltd. for $570 million in cash.
XL said that at the completion of the transaction, XL Life Reinsurance will reinsure the majority of XL's life reinsurance business via 100% quota share reinsurance. “This transaction covers a substantial portion of XL's life reinsurance reserves,” said XL in a statement. XL announced the run-off of its life reinsurance business in 2009.
According to XL, GreyCastle Holdings Ltd. is “a newly-formed Bermuda company whose shareholders include large family offices and university endowments that are long-term investors.”
“While complex, as driven by the nature of our life reinsurance businesses and our objective of maximizing value for XL shareholders, the real benefit of this transaction is clear and simple: XL has now dealt with the vast majority of its life reinsurance business, and has thereby taken another strong step forward in its drive to deliver top-quintile return on equity and book value growth from its core property and casualty operations,” said XL CEO Mike McGavick in the statement.
XL said that as of March 31, it had total U.S. GAAP policy benefit reserves relating to its life operations of approximately $4.8 billion. Upon completion of the transaction, XL will retain approximately $438 million of reserves related to disability, accident and health policies and U.S. term assurance in its Life operations segment and will record a reinsurance recoverable from XLLR of $4.4 billion.
“This transaction meaningfully reduces the risk profile of the company, which gives us additional flexibility to pursue capital management initiatives, including an expectation of buying back an additional $300 million of shares in 2014 over amounts previously contemplated,” said Peter Porrino, executive vice president and chief financial officer of XL, in the statement.
XL said the transaction is expected to be completed in the second quarter of 2014 subject to regulatory approval.
An insurance analyst took a favorable view of the transaction.
“The hit to 3/31/14 book value is approximately 5%, but we view that a cleaner balance sheet and a higher companywide ROE over time, which better reflects the ongoing business, make the transaction worthwhile,” said Cliff Gallant, an analyst at Nomura Securities International Inc. in San Francisco, in a research note.