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Premia Re primed for US run-off explosion

The launch of a $510mn Kelso-backed Bermudian run-off vehicle by Bill O'Farrell and Arch comes at a time of potentially significant new opportunities in the US legacy sector.

The Insurance Insider revealed earlier this month that Premia Re had closed fundraising at just over $500mn, with Arch taking a significant minority stake as well as providing quota share support to the vehicle.

The move was confirmed by the company on Monday (10 January) as Premia Re said its relationship with Arch would allow it to compete on the largest run-off transactions.

Initially operating as a Bermuda-based class 4 reinsurer, the start-up will have a presence on the ground in the US, with group CEO O'Farrell based there and a branch office opened.

Sources said the vehicle's US presence is likely to evolve over time with the establishment of a capitalised subsidiary, potentially in the run-off friendly Rhode Island.

That could position Premia Re to capitalise on new legislation being introduced by the state's insurance regulator that would pave the way for live carriers to sell their legacy books to run-off specialists using structures akin to Part VII transfers in the UK.

Industry commentators have predicted the legislation could be a major boon for the estimated $100bn US run-off sector.

The start-up, which was first revealed by this publication in August 2016, is expected to initially target the middle-market legacy arena currently dominated by Enstar and Catalina.

O'Farrell, working closely with Arch reinsurance CEO Nicolas Papadopoulo, is thought to have identified an appetite from brokers and insurer clients for another player to enter the space.

The strategic relationship with Arch will see the Bermudian offer quota share support to the vehicle, which will allow Premia Re to bulk up for bigger transactions.

It will be in a position to take on renewal rights or active portfolios of risk in situations where an insurer wants to structure a transaction that includes elements of legacy and live business.

Premia Re will not offer rated paper for legacy deals.

The majority investment in the venture comes from Kelso & Co, the New York private equity firm that backed hedge fund reinsurer Third Point Re.

Despite speculation, Premia Re is not structured as a hedge fund or total return reinsurer, however.

It does not have a strategic partner to handle the asset management that also has an equity stake in the business.

Instead, investment mandates are thought to have been handed to middle-market loans specialist Aries, and to BlackRock, which will run a more liquid fixed income portfolio.

The BlackRock connection has been brought over from Chubb by O'Farrell, who was most recently chief reinsurance officer at the carrier.

At the pre-merger Ace, he was instrumental in putting together the ABR Re joint venture with BlackRock.

But more importantly, O'Farrell also brings significant legacy experience to Premia Re.

The executive oversaw Ace's reinsurance buying as well as managing the reinsurance recoverables asset on its balance sheet, including its strategy of actively commuting legacy assets. And he was heavily involved in the landmark Brandywine transaction that offloaded around $900mn of the company's asbestos liabilities to UK run-off group Randall & Quilter.

O'Farrell also spent 11 years at Berkshire Hathaway on the other side of the legacy deal table, advising on transactions and overseeing run-off companies and portfolios acquired by the investment giant, working closely with reinsurance chief Ajit Jain.

At Premia Re, he takes the position of CEO of the holding company and president of US operations.

Further deal-making and legacy experience comes from former Enstar, JP Morgan and Aon Benfield executive Scott Maries, who has been appointed CFO.

Meanwhile, actuarial expertise has been added with former Tillinghast, Conning and KPMG consultant Tom McIntyre, while Joe Calandro - another Berkshire Hathaway alumnus - has joined as executive vice president.

Papadopoulo and Arch Re Bermuda chairman and CEO Maamoun Rajeh will sit on the board of Premia Re along with representatives from Kelso.

O'Farrell reunited with a number of his former Berkshire Hathaway colleagues on the project, including Arch Capital Group president and COO Marc Grandisson.

The new vehicle comes amid evidence of growing demand from insurers for legacy solutions as they look to make their balance sheets more efficient and address volatility in earnings from developing prior-year business.

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