For Stephen Catlin’s new Convex venture, a favourable tailwind has arrived at just the right time

Sometimes start-up carriers are formed when it is an obviously good time to do so.

This is usually when their formation is part of a capital shortage following a market crisis or catastrophe.

Exel and Ace of 1985 and 1986, the Bermudian class of 1993 and the subsequent classes of 2001 and 2005 all had obvious reasons to form.

At those times, the equation of business opportunity plus capital shortage is perfectly solved by the foundation of a new carrier or carriers.

But it doesn’t always have to be that way. The best underwriters are always in demand and will be able to prosper whatever the state of the market.

Successful carriers can be started at any time, and at a time of capital abundance and low return expectations, capital raising for large sums should be slightly easier.

Yesterday’s news that Stephen Catlin’s Convex venture is starting to get some serious and seasoned industry talent signed up means its hard launch must be getting much closer.

So how about timing?

With hindsight of the above opportunities, 1985/86 and 2001 were better and more enduring than 1993 and 2005 as they involved greater uncertainty over the balance sheets, future prospects and survivability of the incumbent market.

This was because the market was undergoing a broad turn involving reserve strengthening for prior years, clouding and tempering the good news that current pricing was quickly moving in a positive direction.

At such times, the new capital is put to work straight away at favourable terms, and clean, new carriers are preferred. No reserves means no doubt about whether the new capital is going to be tipped into covering prior-year reserving instead of making serious profits in the new pricing environment.

When originally formulating the idea and strategy for his new venture, Stephen Catlin can’t have been counting on any positive market tailwind to help him to a strong start.

Capital abundance and perma-softness seemed the new world order. He would have had to rely on his long experience and excellent reputation to gain capital commitments.

But now that underlying profitability has evaporated, carriers are straining and re-ordering their books and their prior-year reserving is going to be scrutinised in minute detail. It seems a favourable tailwind has finally arrived just at the right time.

Insurance is a serious, long-term business and that means timing isn’t everything, but now looks as good a time to be stocking up on top underwriting talent backed by a pristine balance sheet as any time since 2005.

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