CGNU to take £1.4bn hit on sale of US general insurance operation

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The Independent Online

Shares in CGNU fell nearly 3 per cent yesterday after the UK insurance group said it will take a £1.4bn hit on the sale of its US general insurance business to White Mountains Insurance, a US reinsurance group, in a deal backed by Warren Buffet, the US investor.

Shares in CGNU fell nearly 3 per cent yesterday after the UK insurance group said it will take a £1.4bn hit on the sale of its US general insurance business to White Mountains Insurance, a US reinsurance group, in a deal backed by Warren Buffet, the US investor.

Plans to sell the poorly performing US business were announced in February when CGU and Norwich Union agreed to merge. White Mountains, a New York-quoted reinsurance vehicle, is to pay £1.73bn in cash for the operation, which had premium income of £2.8bn last year.

White Mountains, which before this deal had $500m (£340m) of annual sales, is headed by Jack Byrne, who used to run GEICO, the cut-price US motor insurer, which is part of Mr Buffet's Berkshire Hathaway group.

Bob Scott, CGNU chief executive, said that the loss, which will be taken as a write-off to the group's third-quarter net asset value, was necessary to draw a line under the potential long-term liabilities inherent in the business.

The deal with White Mountains would enable CGNU to withdraw completely from those businesses without any risk of further liability, Mr Scott said. "We said all along we wanted a clean-cut exit. Certainly it is at some cost. But it was the lesser of all evils."

British insurers involved in US general insurance businesses have faced increasing losses as a result of the tough line by the US courts in industrial and environmental liability suits.

White Mountains ranked 16th in size in terms of US property and casualty insurers. It had long been seen as brake on Mr Scott's plans to improve efficiency and returns. The cash released will be used to pay down debt incurred in a spate of acquisitions.

Mr Buffet is joining a private investor group that is to subscribe $300m to help finance the transaction in return for 18 per cent of White Mountains stock.

White Mountains had fought off a bid from Citigroup, the banking and insurance giant. CGNU was advised by Goldman Sachs and White Mountain by Lehman, which is also providing $1bn of loan funding. GGNU shares fell 28p to 1,010p.

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