XL sells life reinsurance unit for $570m

XL Insurance (Bermuda) has agreed to sell subsidiary XL Life Reinsurance (XLLR) to newly formed Bermudian company GreyCastle Holdings for $570 million.

XLLR will reinsure the majority of XL's life reinsurance business via 100 percent quota share reinsurance agreement.

This transaction covers a substantial portion of XL’s life reinsurance reserves. XL announced the run-off of its life reinsurance business in 2009. The transaction is expected to be completed in the second quarter of 2014.

XL estimated that the March 31, 2014 pro forma effect of the transaction would be an overall reduction in US GAAP book value of approximately $585 million and an estimated after-tax US GAAP net loss of approximately $580 million.

XL had total US GAAP policy benefit reserves relating to its life operations of approximately $4.8 billion. Upon completion of the transaction, XL will retain approximately $438 million of reserves related to disability, accident and health policies and U.S. term assurance in its life operations segment and will record a reinsurance recoverable from XLLR of $4.4 billion.

Citigroup and JP Morgan Securities served as the financial advisors on the deal and Clifford Chance and Skadden, Arps, Slate, Meagher & Flom served as legal counsel.

Mike McGavick, chief executive officer of XL, said: “While complex, as driven by the nature of our life reinsurance businesses and our objective of maximizing value for XL shareholders, the real benefit of this transaction is clear and simple: XL has now dealt with the vast majority of its life reinsurance business, and has thereby taken another strong step forward in its drive to deliver top-quintile return on equity and book value growth from its core property and casualty operations.”

Peter Porrino, executive vice president and chief financial officer of XL, said: “This transaction meaningfully reduces the risk profile of the Company, which gives us additional flexibility to pursue capital management initiatives, including an expectation of buying back an additional $300 million of shares in 2014 over amounts previously contemplated.”