OneBeacon Buys Atlantic Mutual Books; Atlantic Exits Commercial Biz

Carmen Duarte, a spokesperson for OneBeacon, said the Atlantic Mutual business is a highly segmented book covering middle market businesses in 42 states. She said the book covers various industries, including printers, financial institutions, technology companies and others.

OneBeacon, she said, hopes to obtain regulatory approval quickly and looks to complete the deal by Feb. 1, next year, if not sooner.

"This is an exciting new chapter for OneBeacon," said John Cavoores, president and chief executive officer for OneBeacon. "With the acquisition of this segmented middle-market business, we will start underwriting commercial business throughout the United States. This will bring the best of Atlantic Mutual's and OneBeacon's commercial products, services and people to the market."

"It is a great fit for OneBeacon, and I welcome the Atlantic Mutual employees and producers to the OneBeacon organization," he said.

"This transaction will allow Atlantic Mutual to go forward as a well-capitalized writer of affluent personal lines with a premium-to-surplus ratio lower than one-to-one," said Klaus Dorfi, chairman and chief executive officer of Atlantic Mutual in a statement. "At the same time, our commercial business represents a very complementary fit for OneBeacon. Our commercial insurance division employees, producers and policyholders should experience a smooth transition."

Additional terms of the deal, including its worth, will be released after the acquisition is concluded, Ms. Duarte said.

The sale of Atlantic Mutuals commercial business had rating agencies placing the company on a Ratings Watch as the company realigns itself to become a niche player in the high-end personal lines business.

This is the second sale of Atlantic Mutuals commercial lines business in months. In October, New York City-based Atlantic Mutual sold the renewal rights for its commercial lines inland marine and ocean cargo businesses to Hartford, Conn.-based Travelers. The deal, at the time, totaled $110 million in net written premium. (See NU, Oct. 6, 2003, page 29.)

Fitch Ratings and Standard & Poors, both headquartered in New York City, placed what remains of The Atlantic Mutual Companies on watch with negative implications.

New York City-based Moodys placed the groups insurance strength rating of "Baa3″ on review for possible downgrade. It also lowered the companys surplus notes rating one notch from "Ba3″ to "B1," and placed it, too, on review for possible downgrade.

A.M. Best said its "B-double-plus (very good)" rating remains unaffected by the sale. However, it intends to place the business acquisition "under review with positive implications," after a definitive agreement has been signed.

Best added that the deal can be terminated if the book does not reach 65 percent of retention.

All of the rating agencies expressed concern over whether Atlantic Mutual would be able to get expenses under control with a lower premium base.

The move did not affect OneBeacon, which remained with an "A" rating or higher among the rating agencies. The rating agencies indicated they would probably raise the rating of Atlantic Specialty Insurance Company to other OneBeacon subsidiary ratings once the acquisition is completed.

Donald F. Thorpe, an analyst with Fitch, said the sell-off of the commercial lines reflects a decline in Atlantic Mutuals ratings picture over the last 18 months. He speculated that the trigger for this move may have come in October when Best lowered the carriers rating from "A-minus" (excellent) to its current rating.

(The prior A.M. Best rating move came after the Travelers deal was announced.)

At the time, Atlantic Mutual expressed "disappointment" over Bests decision in the face of the carriers efforts to improve its bottom line.

Mr. Thorpe noted that the primary cause for the series of rating agencies downgrades stemmed from Atlantic Mutuals reliance on finite risk reinsurance and $44 million in pre-tax 9/11 losses, which Fitch reported in April of this year.

Peter G. Scott, a spokesperson for Atlantic Mutual, said that the companys moves would ultimately allow it to "strengthen its bottom line." He said an outside actuarys analysis showed the company has little exposure in the areas of asbestos and environmental liability, addressing a point made by Best that the carrier was insufficiently reserved in these areas.

He estimated the company will have exited somewhere in the neighborhood of 80 percent of its business. With the recent sales of the companys businesses, it is expected that premiums will amount to half of its total 2002 gross written premium of $1.1 billion in 2004, he added.

Mr. Scott said the carrier is looking forward to meeting with the rating agencies to demonstrate to them these are positive moves it is making.

"We hope the rating agencies will come around if we can meet and talk more to them," he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 12, 2003. Copyright 2003 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.