All material subject to strictly enforced copyright laws. © 2021 Insurance Insider is part of Euromoney Institutional Investor PLC.
Accessibility | Terms & Conditions | Privacy Policy | Modern Slavery Act | Cookies | Subscription Terms & Conditions

Post Katrina capital surge gathers pace - Total raised tops $3.2bn; more on the way

ACE has today (3 October) become the latest (re)insurer to announce capital raising plans in the wake of Hurricanes Katrina and Rita, as the industry responds to plug balance sheet gaps and prepare for the underwriting opportunities ahead.

The Bermuda-headquartered reinsurer said it will make available $1.25bn worth of its ordinary shares in a public offering, with up to an additional $187.5mn of shares under an over-allotment option granted to the underwriters of the Citigroup and Goldman Sachs run offering.

According to the company, net proceeds of the offering will be used for “growth opportunities in the global insurance and reinsurance markets”.

Separately ACE revealed in a Securities and Exchange Commission (SEC) filing that it now estimates after-tax losses from Katrina of $550mn, with losses in the range of $100-150mn from Hurricane Rita.

As a result, it said, the (re)insurer expects to make a third quarter operating loss of 50 to 70 cents a share.

ACE’s fundraising initiative follows a surge of announcements by companies in the last 10 days, as the activity roundly predicted at the Monte Carlo Rendez-Vous last month began to gather pace. It also takes the total raised since Katrina hit to around $3.25bn, with a further $2.89bn filed in shelf registrations for future, and no doubt imminent capital requirements.

The pattern of existing players adding to funds was echoed by broker Aon in its report on the impact of Katrina on the reinsurance sector.

“With total capital in the reinsurance industry currently standing at around $160bn, most reinsurers should be able to withstand a loss of between $35bn and $40bn from earnings. However, there will be some which, because of the specialty nature of their business, will have a larger share of the loss and who may therefore see their capital depleted,” the broker stated in its “Aon Risk Bulletin: Hurricane Katrina – Special supplement”, published today.

As reported in Insider Week No.192, Montpelier Re was the first to respond, acting fast to the CreditWatch assigned by ratings agency Standard & Poor’s following the reinsurer’s revelation of $450-675mn net losses from Hurricane Katrina, equivalent to 35-40 percent of its shareholders equity.

The Bermudian company raised net proceeds of $600mn from a common stock offering of 26 million shares at $24 each. S&P responded by taking the company off CreditWatch, leaving it with a negative outlook.

Montpelier Re has since filed a shelf registration with the SEC to sell up to $1bn in mixed securities as required.

On 23 October, Platinum Underwriters Holdings Ltd, parent company of St Paul spin-off Platinum Re, filed with the SEC details of a $162mn net proceeds share offering at the public offer price of $28 a share. Funds will be used to bolster capital at the company’s reinsurance subsidiaries, and for general corporate purposes.

The company also filed to restructure its debt with a $250mn swap of its outstanding Series A 7.50 percent Notes, for Series B 7.50 percent notes.

The (re)insurer expects to take 0.5 to 0.6 percent of the total industry loss arising from Hurricane Katrina.

Canadian headquartered Holdings said it had agreed to offer 1.84 million shares to institutional investors at $162.75 a share, raising a total of $300mn, with the offer closing in the middle of October.

“Fairfax is raising significant equity at this time with a view to bulletproofing its balance sheet and achieving the financial flexibility that has been its hallmark in the past,” Prem Watsa, Fairfax’s CEO, said in a statement.

Fairfax has estimated its net losses stemming from Hurricane Katrina in the range of $175-220mn, but now expects to take advantage of improved “industry dynamics”.

Fairfax holds stakes in US reinsurer Odyssey Re, property and casualty insurer Northbridge Financial, New Jersey based commercial property and casualty insurer Crum & Forster, Lloyd's insurer Advent and the Kingsmead run-off syndicates.

Bermuda’s PXRE was the next company to confirm a capital raising initiative, announcing it had agreed to sell 375,000 perpetual preferred shares in a private placement, raising $375mn, or $360.5mn net proceeds, together with the public offering of $100mn of its common shares.

The combined proceeds would be used to support underwriting at the 1 January reinsurance renewals, and through the remainder of the year, the company said (see story 5).

Then in a 30 September filing, Bermudian powerhouse AXIS Capital announced the sale of 10 million 7.25 percent series A preferred shares, with the public offering price of $25 a share expected to yield net proceeds of $241.38mn to be used for “general corporate purposes”.

The shares are rated Baa3 by Moody’s and BBB- by S&P.

AXIS estimates net Katrina losses of $500-650mn, based on a $40-60bn industry loss.

In addition to Montpelier Re, three other (re)insurers announced the filing of shelf registrations, suggesting imminent fundraising manoeuvres.

On 23 September US insurer WR Berkley filed a shelf registration for the sale of up to $1bn in mixed securities and warrants; the same day that Navigators filed to sell up to $250mn equity and debt securities.

And on 26 September, Bermuda’s Max Re filed with the SEC to sell – determined by market conditions and other factors – up to $635.9mn in share offerings of up to $500mn and $135.9mn.

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree