Greater than the sum of their parts

As the insurance-linked securities (ILS) sector grows and evolves in its complexity, and capital markets continue to advance further along in the value-chain, the ability to offer specialist and holistic solutions across multiple time zones will be a true differentiator. The acquisition of Horseshoe Group late last year has positioned Artex to do exactly that.

Paul Eaton, the newly appointed commercial director, explains that Horseshoe’s expertise in fund administration, corporate secretarial and actuarial valuation in addition to insurance management and reinsurance transformation perfectly complements that of Artex.

Eaton goes on to mention that this “one-stop shop” of services provides great benefit to clients in a number of ways, primarily the ease of accessing solutions, but perhaps more importantly the synergy that is derived from heightened levels of communication, coordination and governance resulting from joining services together in a single organisation.

This, Eaton believes, provides peace of mind for compliance and contract certainty, an essential commodity in the modern financial services industry.

“To be a real player in the ILS segment, we needed a bigger share of the market and a wider offering of services,” Eaton explains.

“The ability to offer fund administration is critical to our future growth and the fact that Horseshoe had been involved in the London ILS regime from the beginning and helped execute five of the first six transactions was also an important consideration.

“This acquisition creates a larger team of experts and will help us over time offer clients a wider range of services with greater efficiency.”

The combined entities have an impressive market coverage of around $50 billion of ILS assets under administration, roughly 50 percent of the ILS market. This depth of market penetration will assist the group’s offering of a differentiating insight into the ILS industry with data, trends and themes providing helpful support to clients’ own analysis and helping their future growth plans.

Horseshoe, the brand name of the newly merged Horseshoe and Artex ILS operations will be led by Andre Perez, who remains the chief executive officer. Eaton will fulfil the role of commercial director with responsibility for business development, client relationships, communication and marketing. With Perez being based in Bermuda and Eaton in Guernsey the company has great coverage of the market, offering executive assistance in different time zones.

Eaton stresses that the attraction of the deal was about more than just numbers. He says the strength of the cultural fit was important and he hopes that will translate into a smooth integration process and bright future for the combined entity.

“Both firms were built on a culture of entrepreneurship. In many ways they have real similarities and fit together very well in terms of the people, mindset and approach,” he says.

On this point, Eaton notes that Artex has significant experience in the realm of mergers and acquisitions (M&A), having previously acquired and successfully integrated a number of businesses.

“We know that when you acquire a business, it is vital that you do no harm,” he says.

“Taking care of our clients and delivering outstanding service will always remain our top priority, so as part of the integration we will not change any existing approach, until we have fully consulted with our clients.”

New model

Operationally, the service delivery model going forward will capture the best business practices of both companies utilising a team of client relationship managers, each having primary responsibility for a number of client accounts to maintain high levels of communication, and liaising with a wider team of specialists internally, to provide the necessary efficiency and expertise.

“Horseshoe has invested heavily in technology including a bespoke insurance underwriting platform to handle collateralised reinsurance products and we have ambitious plans to further develop this,”
Eaton says.

“Technology will pave the way. We will continue to invest in industry-leading technologies to bring greater operational accuracy and efficiency, as well as greater customisation of reporting and data management for our clients.”

The ILS business, as well as retaining the Horseshoe brand, will continue to be run autonomously as part of Artex.

“While we are part of a large listed company it’s essential to have some independence and we will continue to manage the company with that approach,” he adds.

Eaton predicts that the ILS market will continue to grow and become more complex over time, despite some of the bumps in the road the market has experienced more recently, in particular the losses the sector took in 2017/18 and the subsequent problem of collateral being trapped in structures for long periods of time due to the uncertainty around final loss figures.

Eaton says these problems definitely caused investor sentiment to cool for a period, especially in collateralised reinsurance, but there are signs already that new capital is starting to enter the market, which meant the volume of transactions was relatively stable at January 1.

“We were pleased with this outcome as much of the market commentary was around redemptions and trapped capital and it was suggested transactions would decrease. We did not see that happen,” he says.

“New capital is originating mostly from existing funds and investors already familiar with the asset class, combined with a flight to quality in the market.

“Investors are happy to work with managers they have faith in who have performed well in recent years. They are prepared to increase allocations where that is the case.”

Eaton reiterates that as the market evolves clients will require a service provider with wide-ranging functionality and the ability to integrate services and execute anywhere in the world. “It will mean much greater efficiency for our clients and ensure nothing is forgotten or missed,” he says.

A seamless approach

“Demand for institutional quality and the ever-changing regulatory landscape have required a renewed emphasis on corporate governance, transparency and better reporting.

“Clients prefer to outsource their non-core business to experts and Horseshoe is well positioned to offer quality assurance expertise combined with a seamless approach,” Eaton explains.

“We want to operate as a single Horseshoe team across disciplines and locations. Our clients are our partners and we will continue to add value by offering bespoke and high quality solutions to their business needs while maintaining awareness of the challenges they are facing.”

Looking ahead to the remainder of 2020 and beyond, he believes that Horseshoe will increasingly become a thought leader in the market.

“With our presence in this market and combined experience that is only natural,” he says.

“We want to work closely with our clients at a strategic level to shape the future of this growth market. We will have the size, investment and ambition to drive innovation going forward.”

Paul Eaton is the commercial director of Horseshoe. He can be contacted at: paul@horseshoeglobal.com