insurance

Private Equity Provides Strong Backing for a New Insurance Group

by

June 12, 2015

Private equity firms have provided a strong backing for a new insurance group, showing the industry still has faith in the sector. But while the Fidelis Insurance Holdings group managed to gain $1.5 billion in funds from private equity firms and other investors, some in the private equity industry are saying the sector’s investment has been a “mixed bag” for the insurance industry.

 

The Announcement

 

Fidelis Insurance Holdings Ltd is a new specialty insurance and reinsurance company that has its headquarters in Bermuda. The company, founded by industry veterans Richard Brindle and Neil McConachie, managed to receive a strong investor backing, securing $1.5billion in funding.

 

According to the official statement, the newly formed business is going to implement a new innovative model “to optimize both the underwriting and asset sides of the balance sheet”.

Fidelis Insurance Holdings will look for the global insurance markets and it has received an A.M Best rating of A-.

 

The company also announced its fundraising round has attracted a number of private equity and other investors. The $1.5 billion in equity capital is among the largest fundraising efforts in the industry in recent history, making the company a key player in the world of global insurance.

 

Richard Brindle will become the Group Chief Executive Office and Chief Underwriting Officer, with Neil McConachie standing as the Group Chief Financial Officer. The two have a history of building successful companies, having listed Lancashire Holdings in the London Stock Exchange for $2.4 billion in mid-2000s.

 

Brindle said in the official statement, “Fidelis will pursue a total return strategy by tactically shifting capital and risk between insurance and investments to maximize our return on equity across market cycles.”

 

“We have a vastly experienced management team that is strongly supportive of the traditional broker distribution network and has, over decades, developed many strong broker and client relationships,” Brindle went on to say.

 

Immediate Operations

 

The insurance group hopes to start underwriting insurances immediately, with a focus on property, energy, aviation and marine risk classes and sectors.

 

McConachie said in the official statement, “We believe the diversification in assets will protect Fidelis against financial market volatility better than a single-manager strategy would”.

 

Private Equity Interest

 

According to the announcement, the biggest chunk of investment came from three private equity firms. The firms, Crestview Partners LP, CVC Capital Partners Ltd. and Pine Brook Road Partners Ltd, invested a combined total of $650 million.

 

All of the three private equity firms have strong background in financial services. The firms have also been involved in previous ventures with members from the Fidelis Insurance Holdings management team.

 

Crestview Partners currently has over $7 billion of aggregate capital commitments. Pine Brook has a similar portfolio, with around $6 billion assets under management.

 

CVC Capital is the most notable of the firms, with over 300 completed investments in different industries globally. The company’s aggregate transaction value is over $120 billion.

 

Rest of the money raised came from individual investors, family offices and other institutional investors. The equity raised was a mixture of preferred and common equity.

 

On the Lookout for More

 

According to The Street, the company is not completely satisfied with the equity raised, as it was aiming for a higher amount. Brindle told in the interview with The Street, the group’s aim was set to $2 billion.

 

The company had hired Goldman Sachs & Co. to help with the fundraising and the bank is continuing to seek more funding in the coming months.

With such a strong group of investors already backing the company, it wouldn’t be a surprise if more institutional investors provide funding for the venture in the coming months.

 

As well as Fidelis Insurance Holdings being able to attract private equity, other notable deals have been struck in the industry in recent months. Among the deals is the formation of the Nassau Reinsurance Group, which received a $750 million backing from the private equity firm Golden Gate Capital.

 

Is Private Equity Investment Good for the Sector?

 

Just as Fidelis Insurance Holdings received a strong private equity backing, private equity backed Athene Holding’s chief executive officer was telling private equity is a “mixed bag” for the industry. Bloomberg reported Jim Belardi stating in a conference that there are clear concerns over private equity firms buying insurers.

 

Belardi was responding to comments made by Benjamin Lawsky, the Superintendent of the New York Department of Financial Services, who had said “The risks we’re concerned about at DFS is whether these private equity firms are more short-term focused, when this is a business that’s all about the long haul.”

 

But Belardi sees that private equity firms could have a strong positive impact on the industry as well. Bloomberg wrote, “Belardi said that private-equity firms could help bolster insurers’ finances at times when other investors are unwilling to take the risks”. Furthermore, Belardi went on to tell the audience that although he understands the concerns over private equity involvement in the insurance industry, he thinks, “prudent equity capital, that’s in it for the long term and pays attention to risk management…I think it’s a very good thing.”

 

Athene Holding is currently considering listing on the stock market. The insurance group is backed by private equity firm Apollo Global Management.

 

Crowded Market

 

Nevertheless, the insurance industry is currently a crowded market with plenty of equity being poured in the sector. The Wall Street Journal recently reported how “alternative capital” in the reinsurance sector has gone up by 28%. Total reinsurer capital stands at $575 billion, with $64 billion coming from these alternative sources.

 

The regulatory environment around private equity has tightened in recent year and firms are increasingly more aware of the risks in different sectors. But the insurance industry continues to attract capital from private equity and other such sources. In fact, Forbes’ article recently looked at surveys, which found insurance industry experts telling how private equity buyouts will soon become the “most common deal type within the Insurance industry”.

 

The sector can provide many lucrative opportunities for private equity firms. It remains to be seen whether Fidelis Insurance Holdings and other such insurance groups continue to attract more private equity funding in the coming months.

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