Bermuda-based Hamilton Re’s acquisition of Pembroke Managing Agency, which manages Lloyd’s Syndicate 4000, will help gradually increase the reinsurer’s underwriting performance by delivering a new line of business and geographic diversification, according to rating agency AM Best.
Hamilton agreed to acquire the business from Liberty Mutual Group in March in a deal that is expected to close in the third quarter of 2019, pending regulatory approvals. It will also acquire Ironshore Europe DAC (IEDAC) as part of the deal.
AM Best has affirmed Hamilton’s Financial Strength Rating as A- (Excellent), with a stable outlook, reflecting the company’s balance sheet categorisation of very strong, adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
Hamilton’s operating performance has benefitted from investment earnings that consistently outperform peers, partially offset by underwriting losses. The relatively small scale of the company’s operations is a major contributor to its higher expense ratio compared with market peers.
Hamilton also had significant exposure to the catastrophe events in 2017 and 2018, which negatively affected its loss ratio, though AM Best says that these losses were within the company’s risk tolerances.
AM Best expects Hamilton to achieve an underwriting break-even point within two years, the absence of which, regardless of investment results, could result in negative rating pressure.
Hamilton is responsible for the 2019 year of account for Syndicate 4000, while Liberty will retain the corporate member for prior years.
Hamilton expects the transaction to almost double its premium base upon closing. Pembroke and IEDAC are "complementary" businesses that will help accelerate the company's aim of establishing a leadership position in specialty insurance and its ability to expand its reinsurance franchise, Hamilton said.
Dublin-based carrier IEDAC will provide flexibility and strategic optionality for Hamilton, particularly with respect to its growth initiatives in Europe and the US.
Liberty Mutual had placed London-based Pembroke under a strategic review in October 2018, having itself acquired the business in May 2017, when it bought lronshore.
Hamilton, Pembroke, AM Best, Lloyd's M&A, Underwriting