Reliance Continues Runoff, Can’t Block Icahn

Even as Bristol West Insurance Group was planning to purchase two units of Reliance Group Holdings, a federal judge ruled that investor Carl Icahn can proceed with his tender offer for a portion of Reliance Group Holding’s debt.

The two most recent turns in the road leading to Reliance’s likely dissolution are just what analysts expected.

“They’re not in the insurance business any longer, they’re
in the runoff
business,” said Standard & Poor’s Analyst Matthew Coyle. “It’s just part of the natural progression toward getting their house in order.”

Bristol West plans to purchase two units of the troubled insurer to beef up its nonstandard auto insurance offerings. Terms of the deal were not disclosed, but the renewal rights of the two units being purchased represent more than $150 million in annual gross written premiums.

Meanwhile, Icahn has been cleared to take another stab at purchasing Reliance bonds on the open market, a move Reliance has argued would create a stampede to sell.

A federal judge temporarily blocked Icahn from proceeding with his tender offer on Jan. 8. That order was reversed by the end of the week, clearing the way for Icahn to continue with the $40-million tender offer or buying other Reliance debt through his company, High River.

During a hearing on Jan. 12, the judge ruled that the offer can continue, but will be subject to several amendments. The offer must now include a statement disclosing Icahn’s current holdings in Reliance’s more than $500-million bond and bank debt.

The judge gave Icahn until Jan. 15 to revise his offer, which was to be followed by a five-day cooling off period once the offer was published. The judge also refused Reliance’s efforts to prevent Icahn from buying bonds on the open market.

Icahn’s original tender offer for $40 million in Reliance debt was made in December, when he offered to buy 9 percent senior notes for $170 for each $1,000 in principal amount of the notes. The notes were selling for less than half that amount on the open market.

Meanwhile, the Pennsylvania Department of Insurance, which oversees Reliance’s main operating unit, Reliance Insurance Co., has been keeping a close eye on the company. The department took extra regulatory power over the unit last fall. But if regulators decide the company cannot pay off claims and debts, the next step will be complete supervision. Reliance agreed with the department to seek its approval before making major financial transactions.