"This is not a case of buyer's remorse" – Fleming on JRG Re lawsuit

“This is not a case of buyer’s remorse” – Fleming on JRG Re lawsuit | Insurance Business New Zealand

Reinsurance

“This is not a case of buyer’s remorse” – Fleming on JRG Re lawsuit

Company still “willing” to shake hands – with some stipulations

Reinsurance

By
Kenneth Araullo

Fleming Insurance Holdings has mounted a legal defense against the lawsuit brought by James River Group (JRG) related to the stalled acquisition of JRG’s reinsurance division, JRG Re.

Documents filed by Fleming’s legal team, including sworn statements from company executives, counter JRG’s request for a preliminary injunction in the wake of the deal’s failure.

Fleming’s legal filings outline the company’s stance, asserting that the dispute is not about reconsideration of the purchase but stems from what Fleming describes as deceptive practices by James River after the initial agreement.

“This is not a case of buyer’s remorse. It is a bait and switch,” the company said in its filings. “Fleming was excited to buy JRG Reinsurance and remains willing to do so.”

However, according to Fleming, following the signing of the Stock Purchase Agreement in November 2023, James River allegedly engaged in activities that breached the agreement’s stipulations, notably involving reserve practices and liquidity adjustments that deviated from established norms.

These actions, Fleming contends, not only contravened specific prohibitions in the agreement but also failed to meet several conditions necessary for the transaction’s closure.

“Not just drastic”

Fleming argued against the issuance of a preliminary injunction, suggesting that such legal remedies should not be used to enforce specific performance of a merger and acquisition deal, especially when alleged violations by the seller remain unresolved.

“A preliminary injunction is… not a tool to force specific performance of an M&A transaction, particularly when the seller has violated express conditions and closing conditions are unsatisfied… The relief Plaintiff seeks is not just drastic, it is unprecedented,” Fleming said.

Furthermore, Fleming outlined allegd specific breaches by James River, including deviations from prior reserving practices and the improper management of an intercompany receivable, which, in Fleming’s view, absolves it from fulfilling the obligations under the existing terms.

The filings also detail how James River’s management of the reinsurer post-agreement purportedly altered the transaction’s financial dynamics significantly. In the filings, Fleming accuses James River of concealing changes to the reinsurer’s reserving practices and liquidity management until it was too late for these to be factored into the acquisition negotiations.

Notably, Fleming points to a shift in James River’s reserves and liquidity practices as materially impacting the agreed purchase price and violating both the signed agreement and Bermuda law. These allegations were also pointed out in a class action brought up by a law firm in December, citing “lack of effective internal controls over reinsurance.”

Fleming remains “willing”

In response to James River’s suit, Fleming has sought remediation from the insurance group to correct the identified breaches, suggesting adjustments to reserves and liquidity to facilitate the transaction’s completion.

“On Saturday, March 2, still seeking a path to closing, Fleming explained the steps it would consider sufficient to cure James River’s breaches and permit closing: namely a correction to the reserves and an infusion of liquidity such that [the reinsurer] had liquid assets to pay three months’ worth of expenses,” Fleming said.

However, communication between the companies has thus far not yielded a resolution, with Fleming alleging that James River’s response to remediation requests had been particularly terse.

“This week’s filing outlines in painstaking detail the steps James River Group took in its attempt to deliver JRG Reinsurance to Fleming in a condition that dramatically violated the parties’ agreement. While Fleming will continue to defend itself against this meritless lawsuit, we remain willing to acquire JRG Reinsurance if James River cures its breaches of the agreement,” Fleming CEO Eric Haller said.

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