Enstar buying KaylaRe stakes from investors Hillhouse and Stone Point

by Artemis on February 5, 2018

Insurance and reinsurance specialists Enstar Group has acquired the remaining 52% that it did not own of total return reinsurance vehicle KaylaRe Ltd. from fellow founding investors Hillhouse Capital Management, Ltd. and the Trident V funds managed by Stone Point Capital LLC.

When KaylaRe was launched by the trio, Enstar had a 48% stake in the total return vehicle, meaning the third-party investors had the controlling stakes.

Now, the two investors have sold Enstar their combined 52% stake in KaylaRe, in return for taking stakes in Enstar itself, in a transaction valued at approximately $400 million. Both of the investors already own Enstar shares, so this sees them increasing their positions in the legacy reinsurance and capital relief solutions specialist.

The deal sees Hillhouse and Stone Point exchanging their respective 44% and 8% shareholdings in KaylaRe for Enstar shares. Hillhouse increases its holdings of Enstar shares from 9.9% to 17.1% and its voting interest from 3.3% to 9.7%, while Stone Point increases its holdings from 6.9% to 7.6% and its voting interest from 8.2% to 9.1%.

Dominic Silvester, Enstar’s Chief Executive Officer, commented on the news, “This transaction allows us to take full ownership of an important reinsurance platform. It will also enhance our group capital position and equity base. KaylaRe has exceeded our expectations to date, and as sole owner, we will continue to use it as an integral part of our legacy growth strategy. We look forward to the ongoing support of Hillhouse and Stone Point as key partners and shareholders of Enstar.”

With this transaction valued at $400 million for the 52% stake in KaylaRe it reflects very attractive appreciation for the investors.

At the launch of KaylaRe, Hillhouse Capital Management’s stake was valued at $270 million, while Stone Point’s was $50 million. So overall the 52% stake in KaylaRe has increased in value by roughly $80 million, which represents a 25% increase in value for that share of the business.

Importantly, the fact Enstar values KaylaRe so highly reflects the important role that an internal reinsurance strategy, with total return capabilities, can have for a re/insurer.

Hillhouse provides the investment strategy and asset management for KaylaRe, so will continue to earn income from the total return vehicle due to profit share and management fees, it is assumed.

Taking 100% ownership of KaylaRe will give Enstar full strategic control over the underwriting strategy, which could enable the company to take even greater advantage of the efficiency it offers, through its total return strategy.

This move could also be a precursor to an initial public offering of shares for KaylaRe Ltd., something that has always been a possibility as the strategy became bedded-in at Enstar.

That would allow Enstar to fully benefit from the efficiencies of third-party capital alongside a total return reinsurance strategy, which could be a strategically important move for the company’s future.

KaylaRe has been driving an increasing amount of income for Enstar and the other investors behind the vehicle over consecutive quarters and also helped Enstar to manage its losses from the 2017 hurricanes.

KaylaRe follows a total-return, or investment oriented, reinsurance strategy, with Enstar acting as the vehicles underwriting manager and Hillhouse Capital Management investing the float, aiming to produce a return on both assets and liabilities. This adds greater efficiency to the underwriting capital, compared to a traditional strategy that aims for a lower asset return.

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