Focus now on improved underwriting and cutting costs

Brit plans to focus on improving underwriting and reducing expenses following the completion of its restructuring programme.

The final step in the overhaul was this week’s sale of Brit Insurance Ltd (BIL), the FSA-regulated UK holding company, to run-off buyer RiverStone. BIL was the home of Brit’s UK regional business, to which it sold the renewal right to QBE in April.

RiverStone, owned by Canadian insurance conglomerate Fairfax, paid about $300m (£191m) for BIL, a steep discount to its book value of $530m. However, Brit will retain about one-third of BIL’s assets and liabilities because of their connection with continuing business written by Brit’s Lloyd’s platform.

Brit chief executive Mark Cloutier said of his next moves: “We have been recruiting new teams to Brit in recent months, generally looking to improve the standard of underwriting and the overall performance of the business.”

He added: “We will concentrate on achieving what we think will give us a competitive expense ratio. We will continue to look at our operating platform and try to find ways to become more efficient.”

He added that Brit would consider acquisitions, but “very, very carefully”. “Those acquisitions would have to make both substantial economic sense and strategic sense within the definition of our business strategy around the global specialty business.”

The RiverStone deal allows Brit a cleaner break with its UK business than the QBE deal alone could have achieved. Because QBE only bought the renewal rights to the UK business, Brit was left to manage the run-off of the old liabilities. However, the RiverStone deal has freed up management’s time to focus more on continuing business.

In addition, the sale allows Brit to free up capital to satisfy regulators and support its financial strength ratings. Cloutier said: “This will release capital that is in the insurance company, which will give us significant additional capital flexibility.”

He said the sale of BIL had been an option since the renewal rights to the UK regional business were sold to QBE. “We entered into a couple of discussions, and those discussions developed fairly quickly.” Brit opted for RiverStone, he said, because it is a run-off business within a ‘live’ insurance entity, and so likely to be a good home for the BIL business, which still has connections with continuing business.

While Brit sold the BIL assets to RiverStone at a discount to book value, it says that the combination of the RiverStone and QBE deals allowed it to receive a premium to book value for its BIL and UK books.

Talking points …

● Will Brit redeploy the capital it frees up from the sale of BIL, or will it pay a dividend to its private equity owners?
● Given the company’s cautious approach to acquisitions, what in the market would fit its appetite?
● Could the lack of a UK legal entity mean Brit will miss opportunities in the London company market?
● If Brit sold BIL at a discount, how did it achieve a premium overall?