Watford Re, investment oriented reinsurer backed by Arch, targets IPO

Watford Holdings Ltd., the Arch Capital and Highbridge Principal Strategies backed parent to investment oriented or total-return style reinsurance firm Watford Re, has filed for an initial public offering (IPO) on the Nasdaq.

Watford Re has become a valuable component to Bermudian insurance and reinsurance firm Arch Capital’s strategy to embrace third-party capital, bringing additional efficiency to the firms operations.

Watford Re is backed by third-party, largely institutional investors, and follows a total-return or hedge fund like strategy, in that it underwrites mid to longer-tailed, largely casualty reinsurance business with the assistance of the Arch Capital platform, while asset manager Highbridge Principal Strategies invests its assets in strategies aiming to achieve a higher return than a typical re/insurer would.

As such, Watford Re represents 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,  earn fee income, along with enhanced returns from a more active and higher-risk investment strategy.

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

Watford Holdings said it was considering an IPO back in the middle of 2018, in a move to become a registered, publicly-traded company.

This morning the company said it has now publicly filed an IPO registration statement with the U.S. Securities and Exchange Commission related to a proposed listing of its common shares on The NASDAQ Global Market.

The reinsurance holding company said there can be no assurance that the IPO will go through, but we’d imagine that the appetite from investors should help in this regard.

Watford Re will be an attractive investment opportunity for any investors looking to combine insurance and reinsurance linked underwriting returns with an investment strategy run by a recognised investor like Highbridge Principal Strategies.

The company also said that its directors have approved a share repurchase program, which would allow Watford to repurchase up to $75 million of its outstanding shares at times following a successful IPO, providing the reinsurer with more financial flexibility going forwards.

Watford Re has over $3.5 billion of total assets and almost $3 billion that are investable, hence when the Highbridge investment strategy performs it can deliver high investment returns. When the underwriting also performs it could offer investors a very attractive total-return as a result.

Watford Re had launched with a $1.1 billion capital raise, a successful IPO could add to that significantly making the reinsurer more of a market-facing power house and an increasing source of fee income for Arch.