Convex Group raises $1.8bn for launch. Stephen Catlin’s startup gets A- rating

Convex Group is set for launch, as Stephen Catlin’s awaited insurance and reinsurance start-up has raised $1.8 billion from investors and now secured an A- rating for its underwriting vehicles Convex UK and Convex Re.

Convex Group has been in the works for some time now, as ex-Catlin founder Stephen Catlin sought a return to the market alongside former colleagues including Paul Brand, Benjamin Meuli and Adrian Spieler.

Numerous additional and experienced underwriting hires have now been made across a range of specialty insurance and reinsurance lines, meaning Convex is now ready to begin its London and Bermuda based operations.

Convex Group has raised a $1.8 billion commitment from a consortium of investors, which includes funds managed by private equity and insurance focused investor Onex Corporation.

Other investors include the management team, Canadian pension PSP Investments and a consortium of co-investors.

Stephen Catlin commented on the launch, “The launch of Convex distils vast industry experience and client focus to create the insurance company of the future. We begin unencumbered by legacy but rich with expertise and the strength of independence. There is evidence of pricing momentum in many classes and we are well equipped to prosper in a challenging market. We are thrilled to have the support of Onex and our co-investors and believe they will be valuable partners to us as we build our business. Paul and I have worked together since the early Catlin days and the team we have assembled all bring exceptional skills to the table. Together we have a once in a lifetime opportunity and I look forward to the journey that lies ahead.”

The initial capitalisation is roughly $1.6 billion of shareholders’ equity, which has been drawn from the $1.8 billion investor contributed facility to power the firms launch.

Convex Group Limited is the non-operating holding company of the start-up, while Convex Re Limited is the Bermuda reinsurance entity and Convex Group UK Limited the London underwriting platform.

Both subsidiaries, Convex Re and Convex UK, have been given all-important A- financial strength ratings and long-term issuer credit ratings by A.M. Best, setting the company up to begin underwriting.

The company announced its senior leadership team this morning, as follows:

• Stephen Catlin – Chairman and Chief Executive Officer
• Paul Brand – Deputy Chief Executive Officer
• Benjamin Meuli – Chief Financial Officer
• Robina Malik – General Counsel
• Adrian Spieler – Chief Operating Officer
• Doug Howat – Chief Underwriting Officer Insurance
• Matt Paskin – Chief Underwriting Officer Reinsurance
• Mark van Zanden – Head of Portfolio Optimisation

Convex will aim to “deliver top quartile, risk adjusted returns” through its experienced leadership and underwriting team, it said today.

Underwriting will be across insurance and reinsurance for complex specialty risks across a diversified range of business lines, while investment strategy will be conservative, predominantly high-grade fixed income assets duration matched to the profile of the liabilities.

Paul Brand said, “Convex is designed for the evolving insurance industry, and combines years of experience, knowledge and history in this market. Stephen and I see a great opportunity; there is demand for an insurer to bring a refreshed and enhanced offering to market, one that puts fairness and honesty at the centre of its singularly client focused proposition. Convex will challenge the status quo to create value across the chain and provide a differentiated service in a personal way. We are very excited to be launching Convex today and look forward to working with our team to create an innovative partner that drives results for our clients.”

Bobby Le Blanc, a Senior Managing Director of investor Onex, added, “We believe Convex is well-positioned to become a leading specialty insurer. It has a well-respected and experienced management team with an exceptional track record in building value. We are delighted to partner with Stephen, Paul and the entire Convex team and look forward to the years ahead.”

Bringing an additional capital haul to market at this time will perhaps not be welcomed by others, as it’s bound to raise competition in certain areas of the market where Catlin’s Convex start-up is expected to focus.

That focus is expected to be on specialty lines of insurance and reinsurance, although A.M. Best also notes that the plan includes having material exposure to catastrophe risks, although there will be a dependence on reinsurance to manage this risk.

Here the structure of Convex also becomes interesting, as Convex Re is expected to underwrite third-party reinsurance but also provide reinsurance to Convex itself as well.

The UK specialty insurer entity, Convex Group UK Limited is expected to be the main source of premium income, suggesting London and Lloyd’s will be a key access point for Catlin’s new firm, with Convex Re one of the reinsurers for this business.

Could there be a plan for third-party capital in here somewhere for Convex? Some market sources suggest it’s likely and that Convex could look to bring companion capital from the capital markets into its business as it gains greater scale.

To begin though it likely needs to prove out the profitability of its own underwriting, hence third-party capital may be a year two or beyond feature for the company, although it wouldn’t be surprising if plans were accelerated.

As a new entrant, rating agency A.M. Best notes that Convex will face considerable competition, but the stellar team that Catlin has been lining up should provide access to risk and origination, although the firm will have to rely on brokers for a considerable amount of its start-up business it is assumed.

So it appears Convex will be writing new business from the mid-year, having now secured its rating and capital, which brings a considerable bump of capital into the market at a time when many are hoping for hardened rates.

Convex alone may not be large enough to soften rate movements, but if it ramps up competition in some areas of the market it could lead others to lower their pricing expectations as well.

It’s going to be interesting to watch the Convex strategy develop over time and whether it looks to the capital markets in future as an efficient and complementary source of underwriting capital.

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