Clements close to Integro launch
The veteran industry financier Bob Clements is close to raising an estimated $200mn-$300mn to form Integro, the start-up broker which plans to provide an alternative to the established firms encumbered by concerns and high legacy cost bases.
Clements is currently raising capital for the broker - which means "fresh start" in Latin - via a US private placement, which, according to sources, should be completed by the end of April.
"These things often take longer than you would wish for, but we expect the offer to close in the next few weeks," one well-placed source told The Insurance Insider in the mid-April.
The fact that Clements is raising such a relatively high amount suggests Integro plans to build traction quickly, possibly with some strategic acquisitions.
Although Integro plans to compete with all the established insurance broking houses, its existence will be most keenly felt at Marsh Inc - the broking giant to which Clements dedicated most of his working life, including stints as president of MMC and the founding chief executive of the broker's private equity arm MMC Capital.
Clements - who left MMC Capital in 1996 soon after he formed Arch Capital Group (then known as Risk Capital Holdings) - has specialised in rewarding investors who have backed his start-ups in distressed market conditions.
The trend began with the formation of Bermudian giants ACE and XL Capital in 1985 and 1986 to respond to the US liability crisis.
In 1992, he formed Mid Ocean to provide property catastrophe reinsurance in the wake of Hurricane Andrew while, in 2001, he formed the Arch (re)insurance operations after 11 September.
As with ACE Ltd, Integro will be ultimately domiciled in the Cayman Islands, The Insurance Insider understands.
Clements - who resigned as chairman of Arch Capital Group Ltd last month - is in the throes of cherry-picking a management team for Integro that will be centred around Peter Garvey, who resigned as co-president from Marsh Inc last month.
Other former Marsh executives are also likely to join. These include Roger Egan, the former president and CEO of Marsh Inc who left the broking giant in November 2004 as the broker responded to Eliot Spitzer's allegations.
Egan's involvement may, however, depend upon the stance New York's attorney general takes over his role in some of Marsh's past market practices. Earlier this month Spitzer again insisted: "There will be more criminal actions, there will be more civil actions."
A number of well-placed industry executives - including the former chief executive of Marsh Global Broking Bill Gillman - are understood to be helping him with his investigations.
The Insurance Insider understands that Integro will look to establish a number of US offices and also eventually a European operation, almost inevitably located in London.
The news comes only months after the reinsurance broking specialist Benfield Group confirmed that it was to build a primary insurance operation to respond to the disarray in the sector caused by the US regulatory investigations into brokers' market practices.
Clements is raising funding for Integro via a Regulation D private placement, which gives greater flexibility because the initiative does not need to be registered with the Securities & Exchange Commission. Under the SEC Rule 501 Regulation D only certain qualified investors - such as wealthy individuals, venture funds, banks or institutions - may provide the capital.
Few doubt Clements will raise the funds. The real challenge will be persuading the large corporate accounts to move to a relatively unknown quantity once Integro is established.
Either way, it is a fresh problem many of the existing US retail brokers probably wished they could do without.
Building value in inclement times
In these uncertain times, being described as the industry's godfather could create the wrong impression but few deserve the epithet - in a positive sense - as much as Bob Clements.
Clements has played a leading role in shaping the US and Bermudian property & casualty landscape by forming a host of (re)insurers, including ACE, XL Capital, Mid Ocean, and, most recently, Arch.
Clements has played a leading role in shaping the US and Bermudian property & casualty landscape by forming a host of (re)insurers, including ACE, XL, Mid Ocean and, most recently Arch, at times of industry upheaval.
Indeed, it is Clements’ track record in rewarding investors who have backed these - and other investments - which should ensure Integro attracts enough support.
Much of Clements' career was spent at Marsh & McLennan which he joined in 1959. After rising through the management ranks, he became chairman of J&H Marsh & McLennan Inc between 1988-92 and was the chairman and chief executive of the group's private equity arm MMC Capital between 1994-96.
But it was a partnership with his MMC colleague Bob Newhouse which proved particularly fruitful. Following the US liability crisis in the mid-1980s - where capacity in the traditional markets dried as suddenly as a summer creek - Clements and Newhouse came up with an inspired idea: create an entirely new excess liability insurer.
In 1985, ACE Ltd was born as a specialist liability carrier with $200mn in capital and the backing of 34 investors. Although domiciled in the Cayman Islands, Clements chose Bermuda as ACE's base. It was a bold decision - the island was relatively unknown in financial circles outside of captive insurance - but it proved to be inspired as Bermuda became the preferred home of choice for many of the industry's new start-ups.
But this idea of working with the capital markets - and in particular JP Morgan - to create new client capacity was one that Clements, and MMC, repeated to great success. A year on from ACE, and another excess liability insurer was created, EXEL Group (later renamed XL).
Mid Ocean was formed in 1992 following the devastation of Hurricane Andrew and the demand for fresh property catastrophe reinsurance capacity (a host of others were also formed to address this demand: including RenaissanceRe, IPC Re and PartnerRe - all choosing Bermuda as their base).
MMC was also instrumental in raising the $250mn for finite reinsurer Centre Re, created by Steve Gluckstern and Michael Palm, which carved a swathe through the ART industry in the nineties.
Although he remained as advisor until 2001, Clements retired from MMC in 1996 and formed Arch Capital Group Ltd - initially Risk Capital Holdings - as a specialist reinsurer/capital provider.
In 2000, Risk Capital Holdings morphed into Arch Capital Group Ltd and, in the aftermath of the 11 September attacks, it was inevitable that Clements would again become involved in the latest wave of start-ups.
Clements again cherry-picked a senior management team and, raising $750mn, formed Arch Reinsurance Ltd - one of Bermuda's "class of 2001".
Legend has it that the $750mn was raised with six telephone calls. Even if this is an exaggeration, it reflects Clements' track record of rewarding investors who have backed his start-ups.
His latest venture, of course, is a broker. Will it prove equally successful?