May 24, 2018
Round-up of the weekly news and developments from the global (re)insurance market with stories from AmTrust, Lloyd’s, Neon and more.
Icahn takes aim at AmTrust as he tries to block $2.7bn go-private deal
Activist investor Carl Icahn has made an appeal to AmTrust’s minority shareholders to vote against a deal to take the company private, criticising the transaction for being an “opportunistic ploy” to squeeze them out.
AmTrust’s founding family and private equity firm, Stone Point Capital are attempting to take the US insurer private in a deal valued at $2.7bn or $13.50 a share.
However, in an open letter to the firm’s board on 17 May, in which Icahn revealed a 9.4 percent holding in the company, he voiced his opposition to the deal, accusing the Karfunkel-Zyskind families of “blatantly taking advantage of AmTrust’s minority shareholders.”
“Going-private transactions are rarely without controversy, but the law is clear: Non-controlling shareholders must be treated fairly, both in terms of process and price,” he said. “The Zyskind/Karfunkel squeeze-out transaction completely fails to satisfy these criteria.”
Icahn said the board created a voting process for the deal that was “stealthily set” without telling shareholders or the market.
Four days later, Icahn filed a lawsuit against AmTrust and the Karfunkel-Zyskind families, alleging that the $13.50 a share offer price “undervalues the Company and is happening at the wrong price and at the wrong time”.
In the complaint, which was filed in the Delaware Chancery Court, he labelled the transaction as “an opportunistic attempt to take control of a company at historic lows, right before a period of expected recovery and possible earnings growth”.
He also accused the company of manipulating the date of record deadline for shareholders at the time to be permitted to vote on the deal, which could result in a shareholder vote that “severely tilts the playing field” to advantage the owners and to the disadvantage of public investors.
Icahn also took aim directly at the Karfunkel-Zyskind family, lambasting them for dealing their public shareholders a “final insult” after what he said had been “many many years” of AmTrust being run for their own benefit.
“Excessive executive compensation and questionable dividend policies, as well as a web of related party transactions involving family-owned reinsurance companies, office towers and discounted private jet usage, has advantaged the families over the public shareholders for far too long,” he said.
He concluded saying that “we are very optimistic that the Delaware courts will not allow the Zyskind/Karfunkel families to continue their heavy-handed domination and control of AmTrust”.
The proxy battle intensified on 23 May when he described the transaction as an “opportunistic ploy” by Karfunkel-Zyskind families take out minority shareholders at an “extremely cheap price ahead of a period of earnings recovery” in a presentation aimed at his fellow minority shareholders filed with the SEC.
He argued the shares were undervalued by investors who had shunned the company over management’s “historical disregard” for public markets.
However, he said despite this dynamic the take-private offer price still represented a significant discount to the company’s true value.
He noted that with “truly independent oversight management would be held accountable and replaced, and we believe the stock would trade much closer to its peer group, resulting in a long-term price from $20 to $35 per share”.
Icahn cited research by Deutsche Bank which suggested that AmTrust should trade at a multiple of 1.8x to 2.2x book value were this the case, which implies a price of between $26.06 and $31.86, while the Stone Point deal represents a multiple of just 0.93x.
“After shoring up almost $1.7bn in capital through a private placement and several divestitures, the company is at an inflection point where the stock is deeply discounted its true value,” he said.
“Seeing this as an opportunity, the controlling family and board decided to pursue strategic alternatives in November 2017. A rushed ‘process’ resulted in the Karfunkel/Zyskind family teaming up with private equity fund Stone Point to make an offer to take the company private.”
This comes after AmTrust released its counter arguments in a 22 May presentation, citing what it said had been a “thorough process” which led to a deal which “delivers the highest value for AmTrust stockholders”.
The company said that the deal represented the “highest price available” following a two month process in which Stone Point had opened with an offer of $12.25 when the stock was trading around $10.15 back in January.
It said that “in addition to providing immediate liquidity at a significant premium, the transaction provides certain value to unaffiliated stockholders and shifts the business risk and uncertainties faced by the company to the buyer group.”
AmTrust has faced significant headwinds since 2015 after public filings were delayed, financial statements were restated, losses increased across several lines of business and AM Best placed the company’s credit rating under review.
JC Flowers acquires Lloyd’s brokers SSL and Endeavour
Private equity firm JC Flowers has inked a deal to acquire Lloyd’s brokers SSL and Endeavour.
As part of the deal, specialist marine broker SSL and delegated authority specialist Endeavour will merge before being acquired by a fund advised by JC Flowers.
The terms of the transaction were not disclosed.
Upon completion of the transaction, the combined entity will trade as SSL Endeavour. The leadership team at both firms will remain in place, with Roger Spicer retaining his position as CEO of SSL and David Lawrence remaining as CEO of Endeavour.
The newly-merged firm will be co-chaired by Andrew Sturdy, founder of SSL and Chris Giles, Endeavour chairman.
“The merger provides a strong and efficient platform from which to grow a dynamic, client focused Lloyd’s broker whilst exploring further acquisition opportunities in the insurance market,” the statement said.
Headquartered in London, marine broker SSL was founded in 2003 and employs 42 people, servicing a sizeable book of fleets, as well as offering cash-in-transit, financial institution and political risk insurance.
Meanwhile, Endeavour was established in 1999 and has 44 employees in London. It places delegated authority business from North America and Europe into Lloyd’s and London markets.
JC Flowers vice president Jonathan Cox said: “The merger creates a highly complementary and entrepreneurial business from which to expand, both organically and through acquisition. We look forward to working with the team as they develop their specialist proposition.”
The deal is expected to close in the second quarter of 2018, subject to regulatory approval.
Lloyd’s granted regulatory approval for Brussels hub
Lloyd’s has received the regulatory green light for its new Brussels subsidiary, appointing Vincent Vandendael to lead the operation.
The licence approval from the National Bank of Belgium means that Lloyd’s can write non-life risks from the European Economic Area (EEA), enabling the market to continue doing business in the EU post-Brexit.
Vandendael will assume the role of Lloyd’s Brussels CEO alongside his current responsibilities as Lloyd’s chief commercial officer in London, overseeing a team of around 40.
The new subsidiary is expected to be operational and start writing business in time for the 1 January 2019 renewal season, ahead of the UK’s planned exit from the EU next March.
Lloyd’s CEO Inga Beale said the approval will “deliver certainty” and provide reassurance for the Corporation’s customers.
“Since the UK referendum on EU membership Lloyd’s has been working hard to ensure that whatever the outcome of the Brexit negotiations our partners across the EEA will continue to enjoy access to Lloyd’s unique offering,” she said.
“I am delighted that Lloyd’s has received regulatory approval for its new Brussels subsidiary. This will deliver certainty for all our customers, reassuring them they can continue benefitting from Lloyd’s specialist expertise, innovative policies and financial security post-Brexit,” she added.
Meanwhile, Vandendael remarked: “Today marks an exciting next step in the setting up of our operations in Brussels. The new subsidiary will mean that our customers within the EEA continue to have access to Lloyd’s specialist policies, and it will also provide us with opportunities to continue to grow our business on the continent.
“Lloyd’s Brussels will be at the forefront of our modernisation drive, with a platform in one of our most important markets that harnesses all the benefits of Lloyd’s whilst utilising the latest technology, expertise and talent available.”
Neon names Butt as group underwriting director
Lloyd’s carrier Neon has appointed Theo Butt to the newly created role of group underwriting director.
Butt joins from Ascot following more than a decade with the firm, most recently serving as head of non-marine having previously led its property underwriting business. Prior to that, he held a variety of roles at brokers Marsh and JLT.
He will take up his new post on 14 September and will work closely with group CEO Martin Reith and Neon Underwriting CUO Darren Lednor. He will report directly to Reith.
Commenting on the appointment, Reith said: “I am delighted to welcome Theo to Neon. I know him well having worked with him for a number of years and he has developed an exceptional reputation in the market.
“Neon has made strong progress to date and Theo will work closely both with me and our underwriting teams to identify new opportunities and determine new strategies. I am confident he will enhance our position and performance and make a substantial impact as we continue to build out our business.”
RFIB parent rebrands as it sets out to double revenues by 2021
The holding company of independent wholesale broker RFIB, CCP TopCo, has announced that it is rebranding to Risk Transfer Group (RTG) as it revealed plans to double revenues by 2021.
With revenues approaching £50mn, RTG said that it is launching a new strategy to grow revenues to £100mn within the next three years, which it expects to chiefly achieve through RFIB.
In addition, it plans to use its MGA business Limehouse Agencies to both acquire and set up MGAs and captives, teasing a new acquisition in the next quarter and the creation of a UK captive management business later this year to support its expansion efforts.
Commenting on the plans, group CEO Steven Beard said: “We are delighted to announce the launch of the Risk Transfer Group and our plans to double revenues to £100mn by 2021.
“RFIB is currently outgrowing the market organically and RTG will allow us to complement our healthy growth in the broking sector through the addition of MGAs and a captive business.”
Beard said that the company saw opportunities to serve both insureds and carriers through a combination of acquiring MGA businesses in addition to investing in talented entrepreneurial teams.
“Furthermore, we also see opportunities to use new technology to allow clients, particularly in the captive market, to self-insure with better terms. Our combination of independent broker, MGA and captive insurance solutions provides a range of distinct services to allow us to achieve the desired growth in the coming years,” he concluded.
Guy Carpenter taps Aon for UK non-marine MD
Guy Carpenter has named Richard Carver as managing director and senior broker in the firm’s UK non-marine division.
Carver will assume his new role in May 2019 and will be based in London, reporting to the reinsurance broker’s deputy CEO of global specialties, James Boyce.
He was most recently a managing director at rival broker Aon, having worked for the firm for over 15 years both in London and Bermuda. During his career, he has also served as reinsurance underwriting director at Brit and active underwriter for St Paul’s Syndicate 314, underwriting both property and casualty reinsurance business.
Boyce said: “Richard’s expertise covers many components of the industry, spanning different lines of business in the broking and underwriting sectors in both the London and Bermuda markets.
“During his career, he has become a highly respected market practitioner and will be a fantastic addition to our non-marine specialty team.”
Toa Re to launch European platform
Toa Re is preparing to launch a European operation in Zurich, under the leadership of former Amlin Re Europe CEO Philippe Regazzoni.
The Japanese reinsurer will use the new Swiss-based underwriting platform to write European reinsurance business, in a bid to expand its European portfolio currently written from Tokyo.
Regazzoni was CEO of Amlin Re Europe for five years, before leaving the carrier in 2015 to work as an advisor to new businesses in the reinsurance industry. Prior to that, he was a managing director at Swiss Re.
The company said that it is currently in the process of hiring a team for the operation and obtaining credit rating and fulfilling regulatory requirements.
Toa Re already has a wholly licensed reinsurance subsidiary in Switzerland, The Toa 21st Century Reinsurance Company Ltd. (TTFC), which was established in 2002 to assume reinsurance from its parent.
It will repurpose this entity under the trading name “Toa Re Europe” to write third-party business, in addition to existing business from its parent.
The Japanese reinsurer has recently been making inroads internationally as it looks to grow and diversify its portfolio outside of Japan. In October, Toa Re received “in principle” approval from Lloyd’s to establish Special Purpose Arrangement (SPA) 6132 in partnership with Barbican.
Castel Specialty enters political risk
Former AmTrust underwriter Tom White has joined the specialty division of MGA incubator Castel to launch a political risk portfolio.
Led by White, Castel Political Risk will chiefly underwrite contract frustration and political risk coverages, typically focusing on business in Latin America, the Middle East and Africa.
White was previously a senior underwriter at ANV (now AmTrust) where he helped to establish its political risk account in 2013. Before that, he was a political risk underwriter at Liberty Syndicates. He began his career at Willis Towers Watson in 2001 as a broker within the firm’s political risk team.
The move forms part of Castel’s efforts to expand its “club-style” MGA formation platform which is aimed to enabling individual underwriters within niche markets to run their own portfolios.
Castel chief executive Mark Birrell said: “Tom has both broking and underwriting expertise in this niche class. This experience, combined with our dedicated infrastructure support, will enable him to access the specialist brokers and markets required to build a strong-performing book of business.”
White commented: “Castel Specialty has proven experience in launching and developing niche businesses. Their approach means underwriters can focus on underwriting whilst Castel takes care of all key operational aspects such as capacity provision and business support services.”
Fidelis adds mortgage indemnity capacity with MGA Aware Specialty
Fidelis has added a new MGA to its Pine Walk Capital incubator platform that will focus on mortgage indemnity insurance.
The (re)insurer said that it has taken an equity stake in MGA Aware Specialty and will be providing underwriting capacity.
The new MGA will be run by Giles Schofield, the former head of reinsurance for mortgage and special risks at AmTrust International. He established the reinsurance function for Genworth Financial’s European mortgage insurance entity in 2010 and subsequently initiated and implemented the process that saw Genworth sell the entity to AmTrust in 2016.
He has previously held senior positions at a number of broking and underwriting organisations, specialising in ART and capital management (re)insurance programmes, including M&A.
Aware Specialty is the third MGA to join Fidelis’ MGA platform since its formation in November 2017 and joins specialty reinsurance and surety ventures, Radius and Firestone.
Fidelis Underwriting Limited CEO Dan Burrows said: “We are pleased to join forces with Giles and further our strategy in sponsoring bespoke underwriting products”.
He added that the latest MGA addition demonstrates “Pine Walk’s ability to attract talented niche underwriters who are ready to launch their own agency.”
Schofield added: “There is a clear requirement for new, unencumbered, quality capacity in the mortgage insurance sector, which can better support the capital management needs of lending institutions in today’s market.
“Fidelis and Pine Walk have proven to be ideal partners in forming this new MGA that will provide a bespoke product.”