Canadian merchant bank C.A. Bancorp, which was bought last year by CDJ Global Catalyst, has entered into a joint venture with U.S. insurance holding company Federated National Holding Co to form a property and casualty insurance carrier. Named Monarch National Insurance Co, the Florida-based carrier will have an initial capitalization of US$33 million from investments by C.A. Bancorp, Federated National and minority investor Transatlantic Reinsurance Co, a New York-based reinsurer. C.A. Bancorp and Federated National are expected to hold a 42.4 percent share in the new company’s parent organization, Monarch Delaware Holdings LLC.
C.A. Bancorp Inc. Announces Agreement for Insurance Joint Venture
TORONTO, ONTARIO–(Marketwired – July 21, 2014) – C.A. Bancorp Inc. (“CAB” or the “Company”) (TSX:BKP) and Federated National Holding Company (“FNHC”), an insurance holding company, issued a joint press release today announcing an agreement to form a new Florida-based property and casualty insurance carrier (the “Joint Venture”) to be named Monarch National Insurance Company (“Monarch”). Transatlantic Reinsurance Company (“TransRe”) is taking a minority position in the Joint Venture.
The Company has entered into a Subscription Agreement (the “Agreement”) committing USD$14 million to the Joint Venture subject to the satisfaction of a number of conditions including receipt of regulatory approvals, the entering into of the definitive agreements described herein and completion of the closing of the subscription by December 31, 2014.
The Company intends to establish a majority-owned entity (“CAB Holdco”) to make a USD$12 million equity investment in the Joint Venture. CAB has received a commitment from a third party investor to fund the remaining USD$2 million investment in the Joint Venture in exchange for a minority position in CAB Holdco.
Pursuant to the Agreement, the parties to the Joint Venture have agreed to organize Monarch Delaware Holdings LLC (“Monarch Parent”), which will become the indirect parent of Monarch following receipt of the approval of the Florida Office of Insurance Regulation (the “Florida OIR”). Monarch Parent is expected to have an initial equity capitalization of USD$33 million. CAB Holdco and FNHC are each expected to own 42.4% of Monarch Parent’s equity, with capital contributions of USD$14 million each for voting interests, and TransRe will own the remaining 15.2%, with a capital contribution of USD$5 million for a non-voting interest.
The Agreement provides that, upon receipt of all required regulatory approvals from the Florida OIR and satisfaction of the other closing conditions as outlined therein, the parties will enter into the following agreements:
Monarch Parent, Monarch National Holding Company, an intermediate holding company of Monarch (“Monarch Holding”) and/or Monarch will enter into an Investment Management Agreement (the “Investment Agreement”) with CAB or a newly formed affiliate of CAB (“CAB AUM”), pursuant to which CAB AUM will manage the Monarch investment portfolio. The management fee, on an annual basis, will be 0.75% of assets under management up to $100 million; 0.50% of assets under management of more than $100 million but less than $200 million; and 0.30% of assets under management of more than $200 million.
Monarch will enter into a Managing General Agent and Claims Administration Agreement (the “MGA Agreement”) with Federated National Underwriters, Inc. (“FNU”), a wholly owned subsidiary of FNHC, pursuant to which FNU will provide underwriting, accounting, reinsurance placement and claims administration services to Monarch. For its services under the MGA Agreement, FNU will be entitled to receive 4% of Monarch’s total written annual premium, excluding acquisition expenses payable to agents, for FNU’s managing general agent services; 3.6% of Monarch’s total earned annual premium for FNU’s claims administration services; and a per-policy administrative fee of USD$25 for each policy underwritten for Monarch. FNHC will also receive an annual expense reimbursement for accounting and related services.
TransRe will provide USD$5 million in senior debt to Monarch Holding. The debt will bear interest at 6% per annum, which will be payable annually; will mature in six years; and will be prepayable without penalty.
Monarch will enter into a Reinsurance Capacity Right of First Refusal Agreement with TransRe, pursuant to which TransRe will have a right of first refusal for all quota share and excess of loss reinsurance that Monarch deems necessary in its sole discretion for so long as TransRe remains a member of Monarch Parent or the senior debt remains outstanding. Pursuant to this agreement, TransRe will have the right to provide, at market rates and terms, a maximum of 15% of any reinsurance coverage obtained by Monarch in any individual reinsurance contract.
The Limited Liability Company Agreement to be entered into upon the formation of Monarch Parent (the “LLC Agreement”) will provide that it will be managed by a seven-member Board of Managers, three of whom will be designated by the CAB Holdco, three of whom will be designated by FNHC, and one who will be jointly selected by FNHC and CAB Holdco. The LLC Agreement will provide that certain material transactions must be approved by a supermajority of the managers, including a termination or amendment of the Investment Management Agreement or the MGA Agreement. FNHC will be entitled to receive a termination fee equal to the aggregate fees paid under the MGA Agreement for the 12 calendar months prior to the date of termination, if the MGA Agreement is terminated other than for cause. The LLC Agreement will also provide the members with certain redemption, tag-along, drag-along and buy-sell rights.
CDJ Global Catalyst, LLC, the manager of C.A. Bancorp has discretionary authority over certain managed accounts that currently hold in the aggregate shares of FNHC’s common stock totaling less than 1% of the FNHC’s outstanding shares.
A copy of the Agreement and joint press release will be filed under the Company’s SEDAR profile at www.sedar.com.
C.A. Bancorp Inc.
CAB is a publicly traded Canadian merchant bank and alternative asset manager with a primary focus on the insurance industry.
Caution Regarding Forward-Looking Information
This release may contain forward-looking statements about C.A. Bancorp and Monarch. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plans” or “continue” or the negative thereof or variations thereon or similar terminology. Although C.A. Bancorp believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. These forward-looking statements are subject to a number of risks and uncertainties, not all of which are known to C.A. Bancorp, including receipt of any required regulatory approvals, completion of definitive documentation and corporate structures and the timing thereof, market conditions, currency risk, concentration of investments, limited operating experience, reliance on key personnel and management and counterparties, risks in the insurance industry and the Florida market and execution risk. Actual results could differ materially from those anticipated in these forward-looking statements. Reference should also be made to the risk factors published in the Company’s continuous disclosure documents including its most current annual information form available at www.sedar.com.
C.A. Bancorp Inc.
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