Rating agencies positive on Ironshore deal; could resolve financial concerns

The rating agencies have started to react to the news that Liberty Mutual will acquire Ironshore – just over a year after Fosun International, China’s biggest conglomerate, acquired the remaining 80 percent stake in the Bermuda-based property/casualty insurer.

Since it acquired Ironshore, Fosun has grappled with the way in which rating agency AM Best has viewed the deal, specifically the high level of debt leverage it ended up with. Earlier this year Fosun had been looking to complete an initial public offering (IPO) of the company; now, it appears to have decided a complete sale is the best way forward.

Liberty Mutual will acquire a 100% ownership interest in Ironshore via a stock purchase agreement believed to be worth around $3 billion pending closing price adjustments.

Since the deal was revealed, AM Best has placed the financial strength rating of A (Excellent) for Ironshore Insurance (Bermuda) and its affiliated operating companies under review with developing implications.

But the rating agency also stressed that it views the transaction positively as it should resolve any potential concerns associated with the financial leverage position of its current parent company, Fosun.

However, AM Best has said that negative rating actions could occur if Ironshore remains exposed to these financial pressures and the transaction is not completed as planned.

This negative action would depend on the exact circumstances surrounding the dissolution of the pending acquisition agreement, it said.

Meanwhile, S&P Global Ratings has affirmed the BBB long-term counterparty credit ratings on Ironshore and removed them from CreditWatch Negative where it initially placed them in May 2015. The outlook is stable.

S&P Global Ratings credit analyst Tracy Dolin said the move was because it regards Ironshore as strategically important to Liberty Mutual group following the deal closing.

“This designation recognises our view of the importance of Ironshore to Liberty Mutual in its long-term strategy, and its historical success and strong capabilities in product innovation, data analytics, and predictive modelling,” Dolin said.

“Despite these strengths, a newly acquired subsidiary creates heightened potential for unanticipated risks, particularly during the first two years after the acquisition. These risks are slightly elevated because Ironshore was acquired by Fosun International less than two years ago.

“Nevertheless, our issuer credit rating on Ironshore remains the same as that on Liberty Mutual. To determine the ratings on Liberty Mutual's nonoperating holding companies-–including Ironshore Inc. and Ironshore Holdings (U.S.) Inc.--we start with the group credit profile of 'a' and apply three notches of subordination, reflecting the higher degree of structural subordination in the US.”

The transaction is expected to close in the first half of 2017, pending regulatory approvals.