Rating agency AM Best is set to seal its stamp of authority on Bermuda’s “Class of 2005” (re)insurers when it publishes inaugural financial strength ratings for a number of the start-ups in the forthcoming days.
At time of going to press, AM Best is to unveil A- (excellent) ratings on a number of new “Class 4” reinsurers which The Insurance Insider understands may include: Flagstone Reinsurance Ltd, Validus Reinsurance Ltd, Ariel Re and Harbor Point, together with the Lloyd’s insurance operations Amlin Bermuda and Hiscox Bermuda.
Although the island has attracted another wave of post-catastrophe start-ups, thus far only New Castle Reinsurance Company Ltd has been publicly awarded a rating. The reinsurer – established by the giant hedge fund Citadel Investment Group – was awarded an A- financial strength rating last month by AM Best.
The $500mn capitalised reinsurer will operate alongside sister company CIG Re which is unrated but offers the ability to collateralise its exposures. An A- rating is widely regarded as the minimum level of acceptable security for buyers of catastrophe reinsurance.
Flagstone Reinsurance is a $1bn capitalised reinsurer headed by hedge fund manager Mark Byrne as chairman and David Brown, the former chief executive of finite reinsurer Centre Re, as chief executive. Byrne – who is the son of White Mountains’s former chairman and chief executive Jack Byrne – heads the Bermuda-based hedge fund West End Capital. Gary Prestia, the former President of Converium’s North America operations, will be the chief underwriting officer of its US arm while Guy Swayne, ex-ACE Tempest Re chief underwriting officer, international, will be underwriting head of Flagstone’s international operations.
Flagstone Re plans to offer a mixed book, including CAT and per risk excess of loss, marine, energy, aviation, workers compensation and PA CAT reinsurance with capacity of up to $10mn per risk and $75mn per occurrence.
Validus Reinsurance Ltd is ultimately backed by ex-MMC chief executive Jeffrey Greenberg’s new private equity vehicle, Aquiline Capital. The reinsurer is headed by former American Re chief executive Ed Noonan and has raised $1bn in equity from a series of blue-chip private equity investors.
Ariel Re is the second Shakespeare-inspired start-up formed by Don Kramer, who launched catastrophe reinsurer Tempest Re in 1993. The reinsurer is understood to have raised approximately $750mn and has bought GoshawK’s defunct reinsurer Rosemont Re for $12.5mn to supply the company with infrastructure – including Ex-Rosemont Re chief executive Russell Brooke as its chief operating officer.
The final reinsurer close to obtaining an A- rating is the $1.5bn capitalised Harbor Point.
In contrast to the above, Harbor Point is expected to have more of a casualty focus and is headed by John Berger, currently the chief executive of Chubb’s reinsurance unit. The US insurance giant is rolling Chubb Re into the new business, in return for a 16.25 percent stake in the company.
Stone Point – the former MMC private equity arm MMC Capital – is investing $200mn from its managed fund Trident III. Stephen Friedman, the former chairman of Goldman Sachs Group Inc, will be Harbor Point’s chairman.
Three Lloyd’s insurers have also unveiled plans to form Bermudian platforms. Amlin Bermuda and Hiscox Bermuda are to go live in time for the 1/1 renewals with capital of $1bn and $500mn respectively, while Omega plans to form Omega Specialty with capital of at least £100mn in time for the 1 April 2006 renewals. Both Amlin Bermuda and Hiscox Bermuda are expected to obtain AM Best ratings later this month.
The imminent announcements are likely to scotch fears that a significant number of the start-ups might fail to obtain a rating. AM Best declined to comment on this article, but speaking to The Insurance Insider last week, analyst Robert deRose said the agency scrutinises the wider business plan of start-ups and also insists on greater levels of capital.
“We’re in the process of doing due diligence, and looking at not only their capitalisation, but their management, their infrastructure, and their ability to penetrate the market. We’re also taking into consideration the current market environment and the longevity of that market,” he explained.
He added: “I would say that the capital hurdles are rather high, rather higher than they would be for an established company in the same market.”
And, despite concerns that AM Best had effectively rejected the monoline catastrophe reinsurance model, deRose explained: “I think you can be successful as a monoliner. It’s just a matter of the way you control your accumulations.”