Mass Division Gives Nod to Electric Insurance Sale

The Massachusetts Division of Insurance has given the green light for the RiverStone Group, a player in runoff insurance management on a global scale, to take over Electric Insurance. See Agency Checklists article of February 13, 2024, “GE Exits Insurance: Selling Electric Insurance with Plymouth Rock Getting Renewal Rights.”

This decision comes after a hearing held on May 15, 2024, signaling the end of an evaluation process aimed at safeguarding policyholders’ interests and ensuring the stability of the insurance sector.

The Deal Required Approval by the Division of Insurance

In a deal valued at $333 million, RiverStone International Holdings Inc., a subsidiary based in Delaware of RiverStone International Holdings Limited, will purchase all shares of Electric Insurance from its owner, GE Capital US Holdings. Electric Insurance, an insurer specializing in property and casualty located in Massachusetts, will maintain its operations under existing licenses as it transitions its business into a runoff under RiverStone’s supervision.

Following the guidelines set forth in Massachusetts General Laws Chapter 175 §206B(d)(1), the Division of Insurance scrutinized the proposed acquisition to assess its effects on competition, financial security, and future operations within the state’s insurance market. The approval granted indicates that the Division has concluded that all requirements have been met for this acquisition to move forward in compliance with Massachusetts insurance laws.

The Companies Involved

The companies involved in this business deal are Electric Insurance, a property and casualty insurer based in Massachusetts, and RiverStone Group, a life runoff insurance group known for its expertise in managing runoff portfolios. Electric Insurance has a history of providing insurance products in Massachusetts and is currently owned by GE Capital US Holdings. RiverStone Group has a track record of acquisitions and effective runoff process management for insurance companies across different regions.

The transaction between these two entities is structured as a stock purchase agreement. RiverStone International Holdings Inc., a Delaware-based subsidiary of RiverStone International Holdings Limited, is set to acquire all shares of Electric Insurance from GE Capital US Holdings for an agreed-upon purchase price of $333 million. Certain adjustments, including a dividend approved by the Division of Insurance on May 6, 2024, will be considered as part of the deal.

RiverStone’s Post-Acquisition Plans

The plans for Electric Insurance after the acquisition by RiverStone International Holdings Inc. have been outlined in the stock purchase agreement. RiverStone aims to manage Electric’s business in a manner that handles policyholders’ claims effectively and fairly while complying with policies and laws. Their expertise in runoff portfolio management is expected to be crucial in this process.

In addition to managing Electric’s existing business, RiverStone plans to utilize its experience and resources to explore opportunities in the U.S. Legacy and runoff insurance market. It intends to identify and acquire runoff portfolios to expand its presence in the insurance sector.

To ensure a transition, RiverStone intends to keep Electric Insurance’s management team and a significant number of employees. This strategy aims to maintain Electric’s corporate knowledge, uphold relationships with policyholders and regulators, and facilitate the integration of Electric into the RiverStone Group.

The Public Hearing: Testimony and Review Process

The Division of Insurance conducted a hearing on May 15, 2024, as part of the evaluation process for the proposed acquisition. During the hearing, representatives from RiverStone, Electric Insurance, and the Divisions consultant shared insights on how the transaction aligns with requirements and its potential effects on policyholders and the insurance market.

Michael R. Cain from RiverStone expressed support for the acquisition by highlighting the company’s stability, operational strategies, and dedication to upholding Electric Insurance’s business integrity. He emphasized RiverStone’s expertise in managing runoff portfolios. Ensuring a transition for policyholders.

Nicholas Schulson, President and CEO of Electric Insurance, also endorsed the transaction by underscoring its advantages for policyholders, such as a runoff process and RiverStone’s financial solidity as the acquiring entity. Schulson exuded optimism about Electric Insurance’s future under RiverStone’s ownership.

Mark Noller, a consultant to the Division of Insurance, presented an outline of the Division’s Working Group’s assessment process and conclusions regarding the acquisition.

Noller stated that the planned purchase met the criteria specified in Massachusetts General Laws Chapter 175 §206B(d)(1), covering aspects like stability, market competition, and the acquiring party’s management competence.

During the hearing, both sides involved in the deal also agreed to uphold commitments to the Division of Insurance to safeguard policyholders’ interests. These commitments included maintaining a level of capital and surplus for Electric Insurance, informing about any proposed transactions with affiliates, and providing annual financial statements and organizational charts to the Division.

The Division’s Evaluation of the Acquisition

After a hearing and a detailed review of the evidence presented, the Division of Insurance announced its decision regarding RiverStone’s proposed acquisition of Electric Insurance. The decision was based on complying with Massachusetts General Laws Chapter 175 §206B(d)(1) requirements that were crucial for protecting policyholders’ interests and ensuring insurance market stability.

In its assessment, the Division concluded that Electric Insurance would still meet the licensing requirements needed to operate in Massachusetts after the acquisition.

The Division also found that the deal wouldn’t significantly reduce competition or lead to a monopoly in the Massachusetts insurance market because RiverStone doesn’t oversee any insurers conducting business in the state. They looked into the stability of the acquiring party and how it could affect policyholders, ultimately determining that RiverStone’s financial standing was strong enough to support the acquisition without risking Electric Insurance’s stability or harming policyholders.

When evaluating the fairness of the transaction terms, the Division observed that the purchase price resulted from negotiations between independent third parties. They also examined RiverStone’s plans for Electric Insurance. The Division found no signs of unfairness toward policyholders in their proposed runoff process and pursuit of new opportunities.

The Division also assessed RiverStone’s management team’s competence, experience, and integrity, concluding that they had the qualifications to effectively run Electric Insurance post-acquisition. Additionally, they determined that the transaction wasn’t likely to present any risks or harm to insurance buyers.

The Division’s Decision; Approval

After a review and meeting all requirements, the Division of Insurance granted approval for RiverStone’s acquisition of Electric Insurance. This decision enables the transaction to progress based on the agreements made by the parties during the assessment phase.

RiverStone’s plan to expand its runoff business model

The approval sets the stage for RiverStone to enhance its runoff business approach. Also, the approval of this deal has implications for the insurance market in Massachusetts. Although the acquisition itself isn’t anticipated to heavily impact competition, considering Electric Insurance’s market share and RiverStone’s absence in the state, it does signify the increasing interest of specialized runoff insurers in the U.S. Market. With more legacy portfolios becoming available for purchase, firms like RiverStone could play a role in ensuring the orderly resolution of such businesses.

Looking forward, RiverStone has indicated its plans to explore opportunities in the U.S. Runoff insurance sector. Michael R. Cain from RiverStone stated that they intend to seek out opportunities to acquire legacy and runoff insurance and reinsurance portfolios in the U.S. after acquiring Electric Insurance. The success of this deal could serve as a model for transactions emphasizing regulatory scrutiny and requiring acquiring companies to demonstrate their financial solidity, operational expertise, and dedication to safeguarding policyholders.