Legacy-to-live giant Enstar has withdrawn a sale process for its international specialty carrier StarStone to ensure no uncertainty continues into the industry’s key renewal season and at a time of possible buyer fatigue over the number of mid-to-lower tier carriers that are potentially for sale, re-Insurance.com can reveal.
In the first quarter, Nasdaq-listed Enstar instructed bankers Evercore to explore buyer appetite both for StarStone and its separately-managed Lloyd’s (re)insurer, Atrium.
Later, in a June SEC filing, the Bermudian-domiciled Enstar confirmed the appointment and said it - and fellow investor private equity house Stone Point - had engaged corporate advisers in light of what they deemed “favourable perception of market conditions”.
Atrium is a dedicated Lloyd’s (re)insurer with a strong underwriting pedigree but it only controls a small majority of its capacity, which makes it unwieldy for some potential owners.
StarStone - formerly Torus - has evolved significantly in recent years under the stewardship of CEO Demian Smith and operates both through Lloyd’s Syndicate 1301 and international underwriting platforms, including a US excess and surplus lines insurer, a US admitted carrier, a Bermuda Class 4 platform and a European insurer domiciled in Liechtenstein.
In June, Enstar - which is valued at $4.6bn - said the decision to put its two live underwriting businesses on the block was prompted by the values obtained by some businesses rather than a strategic decision to exit live underwriting.
At the time, it said the process came on the back of “several other recent transactions in the industry” and said it was exploring “whether there is interest in these businesses at attractive pricing levels”.
According to sources, Enstar gave an internal deadline of July to complete a process which is thought to have begun as early as February 2018.
In January, AIG announced an agreement to acquire the Lloyd’s and Bermuda (re)insurer Validus for $5.6bn, the equivalent of a high 1.8x price-to-book multiple. That deal was quickly followed by Axa’s eye-watering $15.3bn purchase of XL Group, the equivalent of an even higher 2x price-to-book multiple. Both companies have significant Lloyd’s platforms.
But now, this publication understands that the sale process for StarStone has been postponed to ensure there is no uncertainty to the management or staff ahead of the key 1.1 renewal negotiations which traditionally begin this weekend with the Monte Carlo Rendez-Vous.
It is currently unclear whether the same is true for Atrium.
Sources suggest that Enstar wanted to explore the potential value realisation following the high prices realised for other businesses earlier this year and would only proceed if interest matched its price expectations.
However, valuations for Lloyd’s and specialty businesses appear to be falling with a number of carriers potentially for sale and private equity firms reluctant to pay a significant premium.
Other Lloyd’s insurers thought to be considering a sale include Ironshore’s Pembroke/Acappella businesses and Munich Re’s Beaufort.
Last week, the Bermudian (re)insurer Aspen Insurance - which owns a Lloyd’s managing agency - was finally sold to Apollo Global Management for $2.6bn, equivalent of around 1.13x book.
Trade buyers will typically pay a higher premium than private equity but bankers say there appear to be relatively-few strategic buyers at present interested in Lloyd’s businesses albeit China Re is expected to announce later this week its agreed purchase of top-ten Lloyd’s insurer Chaucer for 1.4x book, or circa $1bn.
Meanwhile, last month The Hartford finally realised its ambition of acquiring a specialty insurer when it purchased US group Navigators - which also owns a Lloyd’s platform - at a handsome premium of 1.8x book.
But the industry was again reminded of the appetite of some trade buyers to explore transformational M&A with the news today that French mutual group Covea approached tier-one reinsurer Scor last month with a takeover offer that the Paris-headquartered reinsurer rejected.
According to banking sources, there is currently little M&A appetite among Japanese insurers - traditionally willing to pay a high premium for perceived blue-chip assets - to acquire Lloyd’s or specialty assets.
If true, this is a reversal of recent history. In 2016, MS&AD paid $5.3bn to acquire the prestige asset of Amlin, the equivalent of 2.43x premium to book.
However, last year Amlin’s Syndicate 2001 sunk to a £500mn loss, the second-largest single-syndicate loss ever in Lloyd’s history. MS&AD has since ordered a major restructuring of the business, which has led to the departure of a number of underwriters and executives, including former CEO Charles Philipps.
Meanwhile, Tokio Marine paid an even higher multiple at around 2.55x to buy HCC for $7.5bn a year earlier.
Another community of potential buyers that has been relatively absent from industry M&A this year are the Canadian pension funds and sources suggest they are also being cautious about further commitments this year despite the large number of businesses potentially for sale, both inside and outside of Lloyd’s.
However, in the aftermath the swathe of cat loss events in the third quarter of last year, the Canada Pension Plan Investment Board was the lead in a $1bn investment to form Bermudian reinsurer, Ascot Re.
That followed the closure of its acquisition of Ascot Re’s parent, the blue chip Lloyd’s insurer Ascot Underwriting, for $1.1bn in late 2016, a multiple of 1.5-1.6x price-to-book. Little more than a year later and Ascot’s former owner, AIG, agreed to pay a significantly higher multiple to acquire Validus and its Lloyd’s insurer, Talbot.
Enstar’s own recent M&A focus has been in a different direction. Late last week, it announced the acquisition of the run-off business of Maiden Reinsurance North America, acquiring approximately $1.3bn of net loss and loss adjustment expense reserves and unearned premium reserves.
StarStone declined to comment and Enstar was unavailable for comment at time of going to press.