Watford Re exploring potential for IPO and listing

by Artemis on June 18, 2018

An initial public offering (IPO) could be on the cards for Watford Re, the third-party capital backed total-return reinsurance venture part-owned by Bermudian specialist re/insurer Arch Capital and asset manager Highbridge Principal Strategies, as its parent holding company said it was evaluating options for a listing.

Watford Re was launched back in 2014 as a third-party capital play of sorts for Arch Capital, giving the re/insurer a way to leverage the appetite of institutional investors to access reinsurance risk, along with the enhanced returns of a more active and higher-risk investment strategy.

The total-return, or investment oriented, reinsurer approach has worked well for Watford and Arch, with the vehicle’s size and portfolio of risk growing with each quarter into a meaningful contributor to the Arch earnings, when investment and underwriting performance align at least.

The plan will always have been to take Watford Re and its platform to IPO, to maximise the value for the backers and early investors while also growing its capital base at the same time.

Watford Re works alongside and with Arch Re, taking some business that Arch would have underwritten itself in the past as well as participating alongside it, which provides a way for Arch to boost its line signings using a source of lower-cost, third-party or alternative capital if it chooses to.

At the same time the more active investment strategy allows Arch to maximise returns on some business that before would have sat in its own portfolios and so been constrained to its typical investment strategy.

Hence Watford has added efficiency for Arch and so growing it and realised some of its initial investment must be an attractive proposition for the re/insurer.

Watford Holdings Ltd., the parent to Watford Re, said on Friday that it is currently “exploring potential avenues toward becoming a registered, publicly-traded company.”

However, the firm said that no decisions have been taken yet, regarding the structure or timing of any transaction, as such there can be no assurances that a deal will take place anyway.

It seems an opportune time to be testing the waters for a public offering and listing of Watford Re, especially considering recent M&A deal valuations in reinsurance.

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