Securing foundations

With one major acquisition in the reinsurance space firmly under its belt, Markel recently announced that its next acquisition would bolster its insurance-linked securities (ILS) offering and further reiterate its commitment to this space.

As the company awaits regulatory approval to acquire substantially all the assets of fund manager CATCo, the proposed new venture—Markel CATCo—will significantly enhance the company’s ILS interaction and put to bed any scepticism about Markel’s dedication to the reinsurance segment.

“This acquisition is a real statement of intent for us,” says Richie Whitt, president and co-chief operating officer at Markel Corporation. “When we bought Alterra, some people questioned how committed to reinsurance we were because we’d previously had little involvement with that market. However, we are committed to the ILS space, and this is a part of our market now.”

Whitt explains that for Markel, ILS is viewed as a growing part of the industry and one in which the company plans to be a meaningful participant.

“The CATCo acquisition mirrors our commitment to reinsurance but also our commitment to becoming a market leader in niche areas,” he says.

“Jed Rhoads, president and CUO of Markel Global Reinsurance, and I had been in talks about our desire to become a meaningful player in the ILS space, so this was a great opportunity.

“We already have the New Point facility, but in the current market, it’s very difficult to grow and, until now, we were subscale. The opportunity with CATCo allows us to gain scale as well as a platform for future growth.

“This acquisition is also evidence of Markel’s continued commitment to Bermuda; we’ll have more staff at another office on-Island now.”

With completion anticipated by December 1, 2015, Whitt explains that the process to acquire CATCo first began in the summer, when Markel heard that the company was interested in a transaction.

A previously formed relationship between Rhoads and Tony Belisle, the CEO of CATCo, meant the pair already knew that CATCo would be a very suitable acquisition for Markel.

“When considering an acquisition we always look at two things: strategic fit and cultural fit. We spent a lot of time with Tony and the team and knew that we could work well together and create a successful operation that embodied the Markel style,” says Whitt.

A bespoke offering

The formation of Markel CATCo will boost the company’s offering within the ILS space significantly, with new products set to launch in 2017.

“We have the New Point product that we’ve offered successfully for over 10 years now, but that’s a rather niche product—it has pretty high rates on line and it’s a single limit,” he says. “With CATCo we have the pillared product which they offer—and that’s been incredibly successful—and all the opportunities that come with their Acquilo fund.”

Whitt highlights that last year, the combined assets under management of CATCo and New Point would have equalled around $2.8 billion, and adds that innovation is high on the agenda for the new operation.

“One thing we’d like to do going forward is to innovate and create new products. Now we have a platform we can use to innovate and bring new products to market. We have ideas, but until now, we haven’t had the resources to bring them to market. With Markel CATCo we’ll be able to offer new products to both cedants and investors,” he says.

Markel CATCo will have a global reach and will continue to seek business via new buyers and investors.

“In terms of retro, it’s a relatively concentrated market, and I think we talk to each and every potential buyer, but we’d love to speak to additional cedants as we move forward,” Whitt explains.

“In terms of investors, CATCo has done very little prospecting for US investors, so this is something that we will explore together.

“On the investment side, the US is really virgin territory for us, so Tony is very excited about going out and seeing whether any of these investors are interested in the product suite that we’re hoping to build.”

A key factor in the future success of Markel CATCo will be not only the cultural fit and increased scale, but the integration of CATCo’s current offering into the existing Markel operation.

“CATCo and Markel slot together easily,” says Whitt. “Jed, Tony and their teams are going to be working together very closely—and those teams already know each other well.

“Overall, we need to make sure that we leverage our existing traditional reinsurance products with what we can do through the CATCo platform to best serve our cedants and provide more products for our investors.”

Progressive growth

While the acquisition shows promising signs of being a happy, long-term marriage, tough industry conditions will certainly present hurdles along the way.

“It’s a challenging market, there’s no question about that. At Markel, underwriting discipline is a core value and we want to make sure that anything we’re writing is meeting return hurdles in what is a tough market,” says Whitt.

“Also, the investment markets have been volatile over the last few weeks. We don’t know what all that is going to mean for us, but we feel very confident that we can work through any issues. We’ve told Tony that we want to grow, but that’s dependent on finding the right opportunities and responding accordingly.”

Looking ahead, Whitt reiterates Markel CATCo’s intent to bring new products to market, but says that timing will play a huge role in this development.

“We need to let the dust clear on the January 1 renewals, then we will think about how we take the business forward,” he says.

“CATCo is a large ILS entity, so we immediately have meaningful scale. As for any future acquisitions, they would have to have a strategic fit that brings us something we don’t have today. As it stands, I feel very excited about the people, products and platforms we have today.”

Richie Whitt is president and co-chief operating officer at Markel Corporation. He can be contacted at: rwhitt@markelcorp.com.