Enstar gets $610m PE backing for StarStone US as insurers position for hard market

Enstar has received $610m of private equity backing to recapitalise US P&C insurer StarStone US, as it becomes the latest firm to try and take advantage of hardening market conditions. It follows moves earlier this week from Lancashire Holdings and Fidelis to raise fresh capital in anticipation of further (re)insurance market hardening, partly fuelled by Covid-19. StarStone US will focus on excess and surplus (E&S) business and has secured the money from investment firms led by SkyKnight, Dragoneer and Aquiline. Together with Enstar’s existing ownership stake and an additional equity commitment of more than $20m from management, StarStone US will have $850m in capital. The recapitalisation is expected to close in the second half of 2020. Enstar will receive a combination of cash and shares in StarStone US. Validus founder Jeff Consolino has been named CEO of StarStone US and former Validus CEO Ed Noonan is appointed executive chairman, as the firm puts in place a new management team. Current StarStone CEO John Hendrickson has stepped down. StarStone US’s new board will also include Paul O’Shea and Robert Campbell from Enstar, Steve DeCarlo and Matthew Ebbel of SkyKnight, Marc Stad of Dragoneer and Chris Watson of Aquiline. Dominic Silvester, CEO of Enstar, said it is a “pivotal moment for StarStone US as we reposition the company towards specialty E&S growth”. Mr Consolino stressed that the timing of the move was linked to the hardening insurance market. “We observe premium pricing increasing and capacity contracting across multiple classes of business, including commercial property, D&O, excess casualty, marine and aviation, and professional liability. Social inflation and natural catastrophe losses, including floods and wildfires, have also added to market rate momentum. In addition, the Covid-19 pandemic has led to market dislocation and additional capital need,” he said. “We believe a specialist insurance company with the right leadership, financial backing, protection from legacy exposures and niche orientation can create significant value in this environment,” he added. Jeff Greenberg, chairman and CEO of Aquiline, said today’s “dynamic” market conditions have created the need for dedicated underwriting capacity across multiple E&S and admitted lines of business. “We witnessed the strength of the Validus management team first-hand and believe Jeff and Ed will build a market leader at StarStone,” he said. Enstar has also announced that StarStone International has contributed its renewal rights to Atrium Underwriters, which manages Lloyd’s Syndicate 609. International business not assumed by Atrium will be placed into an orderly runoff. Earlier this week, Lancashire confirmed it had successfully raised £277m via an equity placing. The speciality insurer issued 39.6 million new common shares – representing up to 19.5% of its existing issued share capital – at a discount of 3.6% to the closing share price of 726p on 9 June 2020. Lancashire intends to use the proceeds to fund organic growth and take advantage of rate rises in key lines. “The rapid increase in rates and dislocation in reinsurance and retrocession markets that are currently being witnessed imply a return to a traditional hard market during the next six to 12 months,” it said. Lancashire added that Covid-19 has led to continued rate increases in many insurance lines and accelerated rises in catastrophe-exposed reinsurance lines. For example, the specialty (re)insurer has seen rate rises of 20% to 30% for 1 June renewals in its Florida property catastrophe portfolio. Lancashire expects the momentum to continue in this and other classes of business across its portfolio during the rest of this year and throughout 2021. Separately, Bermuda-based Fidelis Insurance Holdings has raised a further $500m of equity capital from existing investors. It has now secured $800m of additional equity in the last six months. Fidelis said the additional capital will enable it to “take advantage of the attractive and hardening rating environment”. It will also be used to broaden relationships with existing and new clients in classes the insurer already writes, and expand into new lines of business, the company said in a statement. “We are seeing a broad-based hardening of rates and improvements to terms and conditions in multiple lines of business. This is due not just to the effects of Covid-19, but to multiple factors, from ILS retrenchment to the increasing realisation that underwriting profits are the only sustainable basis for (re)insurers to build long-term business success,” said Richard Brindle, chairman and chief executive of Fidelis. London-based insurers Hiscox and Beazley recently raised £375m and £247m respectively, citing opportunities in the hardening insurance market. Last week, RenaissanceRe raised $1bn in a share offering.

Enstar gets $610m PE backing for StarStone US as insurers position for hard market

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