XL Insurance (Bermuda) Ltd has agreed to sell its life reinsurance operation to GreyCastle Holdings Ltd for $570 million.

GreyCastle Holdings is described as “a newly-formed Bermuda company whose shareholders include large family offices and university endowments that are long-term investors”.

XL announced the run-off of its life reinsurance business in 2009.

At the completion of the sale of XL Life Reinsurance (SAC) Ltd (XLLR), XLLR will reinsure the majority of XL’s life reinsurance business via 100 percent quota share reinsurance. This transaction covers a substantial portion of XL’s life reinsurance reserves.

XL Group CEO Mike McGavick said: “While complex, as driven by the nature of our life reinsurance businesses and our objective of maximising value for XL shareholders, the real benefit of this transaction is clear and simple: XL has now dealt with the vast majority of its life reinsurance business, and has thereby taken another strong step forward in its drive to deliver top-quintile return on equity and book value growth from its core property and casualty operations.”

At March 31, 2014, XL had total US GAAP policy benefit reserves relating to its life operations of approximately $4.8 billion. Upon completion of the transaction, XL will retain approximately $438 million of reserves related to disability, accident and health policies and US term assurance in its Life operations segment and will record a reinsurance recoverable from XLLR of $4.4 billion.

XL estimates that the March 31, 2014 pro forma effect of the transaction would be an overall reduction in book value of approximately $585 million and an estimated after-tax net loss of approximately $580 million.

“This estimate is subject to changes in the mark-to-market value of the underlying investment portfolio and other adjustments from March 31, 2014 through completion of the transaction,” XL added.

Rating agency AM Best said last night that the financial strength rating of A (excellent) of the property and casualty subsidiaries of XL would remain unchanged.

“AM Best notes, the impact of Best’s Capital Adequacy Ratio (BCAR) is considerably lower than the actual book value loss and has little consequence in the claims-paying ability of the company,” Best stated last night.

XL chief financial officer Peter Porrino said: “This transaction meaningfully reduces the risk profile of the company, which gives us additional flexibility to pursue capital management initiatives, including an expectation of buying back an additional $300 million of shares in 2014 over amounts previously contemplated.”

The transaction is expected to be completed in the second quarter of 2014 and is subject to satisfaction of regulatory conditions.