Sources said Duperreault has teamed up with investment executives Lawrence Minicone and Jason Miller to form a new underwriting business that would constitute a Bermuda-based rated carrier, with an associated fund structure.
It is understood that Mereo will focus primarily on underwriting in contrast to the asset risk-focused hedge fund reinsurance structures used elsewhere.
Sources said Mereo is currently working with investors and regulators, with a view to launching towards year-end. Capital raise targets tend to be relatively elastic based on demand, but sources suggested the team was likely to look for $1bn+ of commitments.
Approached by this publication for comment, Duperreault said: "I believe now just might be the best time in my career to be launching a reinsurance company. To me, perceived risk is probably higher than actual risk, but time will tell.
“To that end, I believe Mereo's balanced risk allocation and structure is uniquely positioned to outperform if realized risk comes in below broad perceptions, but is also sufficiently diversified to protect the downside well, if market perceptions do materialize."
In a statement, Minicone added: "While current market turmoil is affording Mereo an opportune moment to enter the market, I believe our unique capital structure and risk selection process is what will enable us to create value for our investors and partners in the long run."
In a further statement, a representative for Mereo said the firm is “trying to combine the very best of insurance and asset management”. They added: “Mereo aims to combine the expertise of its seasoned insurance C-suite with the post-modern portfolio theory risk technologies of multi-strategy hedge funds and do it at a best-in-class cost ratio.”
Sources said Mereo is working on the raise with advisers including Kinmont, which advised on the Fidelis bifurcation and the launch of Conduit. Inver Re Capital Markets, a unit of Ardonagh, is also advising management.
Company structure
The rated Bermuda carrier will benefit from a partnership with a fund of third-party investors – essentially combining typical insurance and asset management structures. Cornerstone investors will fund through the rated carrier and will earn fees and profit commissions on third-party contributions.
Sources said Mereo told investors that it expected to deliver uncorrelated, equity-like returns, with bond-like risk.
It is understood that Mereo would look to originate business from around 20-30 classes of business, creating a highly diversified book. These would include a portfolio of classes such as auto, workers’ comp, professional liability, commercial property, casualty, crop, marine, surety, energy, reps and warranties, medmal, cyber and A&H.
Mereo is understood to have engaged with multiple broking firms, with work underway to establish a diverse and non-correlating book of MGA business.
Initially, it would look to source business via various reinsurance structures, MGA relationships and other broker-related sources. In phase one, this will mirror a “fund of fund” hedge fund structure. A second phase would include the build-out of underwriting teams onto the platform.
Reinsurance market conditions have improved materially with larger cap Bermuda carriers reporting H1 RoEs in the 14%-23% range, representing historically attractive earnings. However, fundraising for new businesses from private equity has been highly challenging, with this institutional money skeptical about the ability of reinsurers to build long-term franchise value, and wary of catastrophe-driven volatility.
To date, the other start-ups that have been working to raise money – including those led by John Doucette, Chris Fagan and Tats Hoshina – are yet to announce they have secured capital.
Public markets have been more supportive with both Everest Re and RenRe raising substantial equity, and there has been around $5bn net of capital inflows into the ILS market in H1, according to Aon.
The team
Minicone is set to be the chief investment officer of the Mereo entities. Minicone started his career at Bridgewater Associates, the largest hedge fund in the world, after which he managed money at Castleton Commodities International. He later launched and was the head of research at a systematic global macro hedge fund in New York.
Sources said Miller will become chief commercial officer. Before Mereo, he spent more than a decade at BlackRock and has worked in the financial sector for more than 30 years.
Duperreault has had a distinguished career in the insurance industry running several of its largest franchises. He ran Ace for a decade between 1994 and 2004, and then spent two years as non-executive chairman.
He then joined Marsh McLennan as CEO in 2008, helping to right the ship after the Spitzer scandal, before handing the reins to Dan Glaser in 2012.
Following his time at Marsh McLennan, he formed Hamilton Insurance Group in conjunction with hedge fund TwoSigma as an acquisition vehicle for Bermudian reinsurer SAC Re.
He left his role as chairman and CEO of Hamilton in 2017 and was parachuted in as CEO of AIG following a period when predecessor Peter Hancock came under pressure from feared activist Carl Icahn.
