A U.S.-based global insurance company (Company X) hired a new CEO who was serving as CEO of Company Y which he co-founded with Hedge Fund Z as a hedge fund reinsurer in his tax heaven hometown. According to public disclosures he no longer had any personal interest in Y when he joined X.
But the same day X and Y entered into a reinsurance strategic partnership in which Y was provided with the opportunity to participate in an annual reinsurance premium amount over 40% of Y's total net premiums written then, and with guaranteed annual increase for several years.
In the meantime X also agreed to acquire Y's U.S. subsidiary (YUS) at book value plus a certain amount. Then YUS increased its book value by over 20% in less than five months right before the completion of the transaction.
One day short of 30 months after X's acquisition of YUS and a few months before the CEO's retirement from X, YUS was put into run-off. The run-off announcement was made two months after the exact run-off date, and it came as a huge surprise to all stakeholders: YUS was still hiring new executives after the run-off date and submitting new state and regulatory filings by the exact date of the run-off announcement.
The YUS transaction brought X a pre-tax loss over 150% of its original purchase price, and recorded seven times of good will as impairment loss. The following year X further increased prior-year legacy loss reserves and higher catastrophe activity totalled over the original purchase price "mostly driven by YUS's exposures".
So the question is: Who's the winner and who's the loser - X, Y, and Z? Why the CEO did this? He's supposed to have no personal interest in all these - but If he had, what and how?
But the same day X and Y entered into a reinsurance strategic partnership in which Y was provided with the opportunity to participate in an annual reinsurance premium amount over 40% of Y's total net premiums written then, and with guaranteed annual increase for several years.
In the meantime X also agreed to acquire Y's U.S. subsidiary (YUS) at book value plus a certain amount. Then YUS increased its book value by over 20% in less than five months right before the completion of the transaction.
One day short of 30 months after X's acquisition of YUS and a few months before the CEO's retirement from X, YUS was put into run-off. The run-off announcement was made two months after the exact run-off date, and it came as a huge surprise to all stakeholders: YUS was still hiring new executives after the run-off date and submitting new state and regulatory filings by the exact date of the run-off announcement.
The YUS transaction brought X a pre-tax loss over 150% of its original purchase price, and recorded seven times of good will as impairment loss. The following year X further increased prior-year legacy loss reserves and higher catastrophe activity totalled over the original purchase price "mostly driven by YUS's exposures".
So the question is: Who's the winner and who's the loser - X, Y, and Z? Why the CEO did this? He's supposed to have no personal interest in all these - but If he had, what and how?
