Hanover Insurance Group Inc on Thursday decided to sell its unit that underwrites risks at insurance market Lloyd’s to China Reinsurance Group Corp for $950 million to focus on expanding its domestic business.
Shares of Hanover rose as much as 5.32 percent, with the company saying that sale of the unit, Chaucer, would reduce its catastrophe and tail risk exposure and improve long-term operating return-on-equity potential.
China Reinsurance will fund the deal to buy Chaucer with $865 million in cash and $85 million in dividends from the unit.
The cash part of the deal consists of initial consideration of $820 million payable at closing and $45 million to be held in an escrow account, which may be adjusted if catastrophe losses incurred in 2018 go beyond certain threshold.
“This transaction will enable us to build on the growing momentum in our domestic property and casualty businesses,” said Hanover Chief Executive Officer John Roche in a statement.
The company, whose domestic net premiums have grown 20.6 percent to $4.1 billion in the last five years, plans to expand capabilities in commercial businesses as well as improve penetration in the personal lines and small commercial sectors.
The transaction is expected to close late this year or in the first quarter of next year, subject to regulatory approvals.
Hanover’s financial advisor was Goldman Sachs & Co Llc.