Clear Blue fronting startup acquires two shell insurers, nearing launch

by Artemis on December 4, 2015

Clear Blue Financial Holdings LLC has acquired two clean shell insurance vehicles in acquisitions completed a month ago, with Maiden Holdings and RLI Corp, giving it the platform to provide rated fronting to unrated and alternative reinsurance capacity, as it nears its launch.

Puerto Rico based Clear Blue Financial Holdings LLC is a start-up insurance company that aims to enter the risk fronting and program business space, to help sources of risk or reinsurance capacity to reach program risks and primary insurance business.

Founded and led by President Jerome Breslin, previously of Amtrust, Bank of America and AIG, Clear Blue will enter a space currently dominated by State National Companies and where another recent start-up Spinnaker Insurance Company is focused. Also in the Clear Blue team is Scott Paladino, an experienced underwriting executive who takes the role of SVP at Clear Blue, previously having worked at Patriot Underwriters and Sompo Japan Nipponkoa America and Liberty Mutual.

The firm will aim to bring its due diligence, underwriting expertise and ongoing program management skills to managing general agents that want to access alternative or unrated sources of capacity in the global reinsurance markets.

Clearly that could include insurance-linked securities (ILS) funds and investors, enabling them to access property risk business program business through MGA’s, providing their ILS or collateralised reinsurance capacity to back the risks underwritten.

In order to get up and running Clear Blue needs an underwriting platform, with access to as many U.S. states as possible. To achieve this Clear Blue decided to acquire two insurance companies as clean shells, providing it with the multi-state access and a ready-made platform to submit for rating.

Clear Blue has purchased the clean shell of Maiden Specialty Insurance Company from Bermudian insurance and reinsurance group Maiden Holdings, in a transaction that completed on the 3rd November 2015.

The latest acquisition of Maiden Specialty Insurance Company provides Clear Blue with an excess and surplus lines platform, with access in 49 states of the U.S. We believe this shell company is set to be named Clear Blue Specialty Insurance Company.

As part of the deal Maiden Specialty Insurance Company entered into a reinsurance agreement for all of its liabilities with its parent, Maiden Reinsurance North America, thus leaving a clean shell for Clear Blue.

Clear Blue has also purchased RLI Indemnity Company (a subsidiary of RLI Corp.), which also offloaded all liabilities to its parent in a reinsurance agreement leaving the shell company clean. This acquisition was also completed on the 3rd November.

We believe that RLI Indemnity Company will be named Clear Blue Insurance Company and operate as a multi-line insurance fronting outfit with admittance to 49 U.S. states.

The A.M. Best ratings for both Maiden Specialty Insurance Company and RLI Indemnity Company were withdrawn by the agency yesterday, which likely means that the rating of the Clear Blue fronting insurer platforms is imminent.

Clear Blue says that it anticipates an A- rating from A.M. Best and is aiming to fit within the $50m to $100m financial size category at launch. The firm hopes to begin business the fourth quarter, which again suggests a rating announcement is imminent. We’ll update you when one emerges.

The business opportunity to source, manage and underwrite program risks, of an excess and surplus or primary nature, on a rated fronted basis for alternative sources of reinsurance capital or unrated capital providers is clearly seen as attractive, given the focus that program fronting has received.

With the ILS fund sector keen to work with fronting carriers, to bring their efficient risk capital closer to the ultimate source of risk, the fronting carrier trend also promises to further disrupt the traditional reinsurance value-chain.

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