WORCESTER — Hanover Insurance Group Inc. has agreed to sell its international insurance business to a Chinese corporation for nearly $1 billion just seven years after acquiring the operation.
Hanover reported Thursday it would sell Chaucer, based in London, to China Reinsurance Group Corp. for $950 million. The sale price includes $865 million in cash and an $85 million dividend paid earlier this year from Chaucer.
The buyer, known as China Re, is expected to take over the business later in 2018 or during the first three months of 2019.
Hanover bought Chaucer in 2011 for $474 million but said earlier this year it was considering options for the business. Hanover called the China Re deal an attractive outcome for shareholders and said it will allow the property and casualty insurer to expand its U.S. business.
“It will set the stage for prudent strategic investments in attractive markets, allocating capital to our more profitable businesses and providing us the opportunity to return capital to shareholders,” Chief Executive John C. Roche said during a conference call.
The price of the deal was about 1.7 times above Chaucer’s $520 million book value, analyst Christopher Campbell of Keefe, Bruyette & Woods wrote in a note to clients. Book value is a way of measuring a company’s net assets.
“This is in line with our expectations, and we think increased certainty on proceeds should drive the shares upward (Thursday),” Mr. Campbell wrote.
Hanover stock rose 4 percent to $119.90 Thursday in trading on the New York Stock Exchange.
Hanover is a property and casualty insurer that offers its policies through independent agents and brokers. Chaucer is a specialty insurer that operates within the Lloyd’s of London marketplace, a collection of companies that pool risk. Chaucer’s policies cover everything from oil tankers to nuclear power stations.
China Re is a large reinsurance business owned by the Chinese government and a Chinese sovereign fund. Reinsurance is a form of insurance purchased by insurers to limit the amount of money they can lose.
In 2017, China Re posted profits of 105 billion yuan, or about $774 million.
Mr. Roche said that owning Chaucer has diversified Hanover’s business, but selling it will reduce the company’s exposure to global catastrophes.
“This transaction will stabilize our catastrophe risk profile and make it more consistent with a U.S. primary insurance carrier, while also reducing our capital requirements,” he said.
The transaction requires several regulatory approvals but is expected to close later this year or in early 2019.