QBE Insurance Group announced a reinsurance transaction with legacy acquisition specialist Enstar, designed to de-risk the group’s exposure to portfolio reserves totaling $1.9 billion.

“This portfolio includes reserves primarily relating to North America and international financial lines, discontinued programs and our inward reinsurance business, QBE Re,” according to Inder Singh, QBE’s group chief financial officer, during an analysts’ call. “Almost all of these reserves relate to business underwritten between 2010 and 2018.”

The transaction provides coverage against any deterioration of these reserves up to a limit of around $900 million, he explained.

“The upfront P&L impact is around $100 million [or expected pre-tax upfront cost], which is basically the difference between the premium we pay Enstar and the release of reserves and risk margin we currently hold against this portfolio,” Singh added.

“Capital efficiency and returns optimization were the primary motivation for the deal that will also reduce reserve risk and create bandwidth to focus on growth,” noted Andrew Horton, group chief executive officer.

In a separate announcement, Bermuda-based Enstar Group Ltd. said its wholly owned subsidiaries reached the agreement with QBE to provide a ground-up loss portfolio transfer (LPT), which will be effective as of Jan. 1, 2023. The transaction will complete upon receipt of regulatory approvals and satisfaction of various other closing conditions, Enstar said. Upon completion, a portion of the portfolio currently underwritten via QBE’s Lloyd’s Syndicates 386 and 2999 will be transferred into Enstar Syndicate 2008.

“This transaction—our second significant collaboration with leading insurance group, QBE—represents a unique and emerging business opportunity for Enstar,” commented Dominic Silvester, Enstar’s chief executive officer, in a statement.

“In addition to covering QBE’s discontinued lines, we are providing our expertise on seasoned liabilities within ongoing lines of business as a source of value creation. This innovative structure requires strong alignment of interests, and we have secured that with our long-standing partner QBE,” he added.

During the analysts’ call, QBE reported a group combined operating ratio of 93.7, an improvement over 2021’s COR of 95.0. “The result demonstrated encouraging resilience in light of elevated catastrophe costs, geopolitical tensions and inflation,” the company said in a statement. (A combined ratio below 100 indicates an underwriting profit.)

“This equates to an underwriting profit of $933 million, excluding the significant $1.2 billion benefit from the increase in risk free rates over the period,” said Singh in his presentation. This compares to an underwriting profit of $695 million in 2021. (“Risk free rates” are the rate of return offered by an investment that carries zero, or limited, risk. An example would be the interest rate paid on short-term government debt.)

The company’s “adjusted cash profit of $847 million was around 5 percent higher than 2021 and supported a group return on equity of 10.5 percent. This is the strongest return that QBE has reported in over a decade,” added Singh. The 2021 adjusted cast profit was $805 million.

QBE’s gross written premiums rose 13 percent to $20.1 billion from $18.5 billion in 2021.