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Pair Plan To Expand In Global Run-Off Market

Bermuda Correspondent Castlewood Ltd., a privately-owned Bermuda company with experience in managing and acquiring insurance and reinsurance run-off operations, and the Enstar Group, a Montgomery, Ala.-based investment company, plan to expand their participation in the global run-off market.

The companies have announced their intention to acquire two reinsurance subsidiaries of Marsh & McLennan Companies that are in run-off: Bermuda-based Overseas Reinsurance Corp. and River Thames Insurance Company in London. (Overseas Reinsurance Corp. is part of the Sedgwick Group Ltd., a U.K. subsidiary of Marsh, while River Thames is owned by the Rivers Group, another Marsh subsidiary).

The purchases will be effected through a Bermuda holding company, Revir Ltd., which was formed for the purpose of the acquisition and is owned 50 percent each by Enstar and Castlewood.

Revir has signed a definitive agreement with Rivers Group and Sedgwick Group for the acquisitions, which is subject to regulatory approval. The deal is expected to be finalized within the next several months.

The financial terms of the acquisitions were not disclosed, but Enstar has agreed to invest in Revir a maximum of $11 million, according to a statement from Enstar.

As of Dec. 31, 2000, River Thames had capital and surplus of 51 million ($71 million at current exchange rates) and gross loss reserves of 268 million ($375 million). Overseas Reinsurance is privately held and therefore financial data is not available.

The venture is the second between Enstar and Castlewood. In April 2000, they jointly purchased two reinsurance subsidiaries of Petrofina, a subsidiary of TotalFina Elf, the French energy company. The two companies, which were both in run-off, were Brittany Insurance Company, incorporated under the laws of Bermuda, and Compagnie Europeenne dAssurances Industrielles, a Belgian corporation.

The Revir transaction is not likely to be the last for Enstar and Castlewood.

“We are interested in finding additional run-off opportunities to pursue together,” said Nimrod T. Frazer, Enstars chairman and chief executive officer in a telephone interview from his Montgomery, Ala., office.

Paul OShea, a principal of Castlewood, confirmed that Enstar and Castlewood intend to grow their mutual business interests.

“The Revir acquisitions are part of an ongoing investment strategy of both Castlewood and Enstar,” he said in an interview from Castlewoods London office. “We expect to add several more companies in run-off and this will lead to further expansion of Castlewood in both Bermuda and the U.K.”

Enstar and Castlewood began doing business together as a result of long-standing relationships that existed among the top executives of the firms.

The Enstar Group was originally an outgrowth of Kindercare, the largest childcare company in the United States. Enstar diversified in the 1980s using debt to put together an array of companies including a large thrift company in Miami, Fla., and a small investment bank in New York, Mr. Frazer said, recalling the history of the company.

It also had interests in womens clothing and shoes. At one point, the company employed as many as 6,000 people, he continued.

In 1991, overextended by its debts and following problems with fraud on the part of management, Enstar declared bankruptcy, he said.

Mr. Frazer joined Enstar as a director in August 1990 and was made crisis chairman, president and CEO of the company in October of that year.

The company re-emerged in 1995, with assets principally comprised of bank stocks, which were later sold for cash, he said. Enstar, which had been publicly traded, cancelled its shares and new stock was issued to those people who held shares at the time of the collapse of the company, Mr. Frazer added, noting that the company then began to look for situations in which to invest.

The company has an investment pool of approximately $100 million, Mr. Frazer said, noting that it also has a tax loss carried forward of about $40 million, which helps shelter future profits and increases the potential value of the company.

J. Christopher Flowers, who formerly managed the financial institutions group at investment banker Goldman Sachs, became an Enstar director in 1996 and made a capital infusion of $15 million in 1998, Mr. Frazer said. Then, last year, John Oros, who had worked with Mr. Flowers at Goldman Sachs, joined Enstar as chief operating officer.

“Chris Flowers and I have worked together in various capacities at Goldman Sachs covering a 22-year period,” Mr. Oros explained by telephone from his office in New York. “He ran the financial institutions group, in which I was a partner. We were on the investment banking side.”

Castlewood commenced run-off operations in 1993. “We met Chris Flowers later, when he was looking to expand into reinsurance,” explained Mr. OShea at Castlewood.

Mr. Frazer outlined the genesis of the relationship between Enstar and Castlewood. “We were looking at a particular insurance company as a potential investment and we met with Castlewood at that time. It transpired that we did not buy the insurance company but became interested in establishing a relationship with Castlewood,” he said.


Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 13, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.




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