Noonan actively seeking “scale-up” E&S opportunity
Former Validus CEO Ed Noonan is in the process of identifying a suitable platform for an E&S play after receiving multiple approaches from potential private equity investors looking to access the fast-hardening market segment, The Insurer can reveal.
According to sources, the executive has received meaningful interest from several PE firms in recent weeks to support either an acquisition and recapitalisation of an existing carrier or a potential start-up.
The former is likely to be favoured because of the speed of access to bring capital to market and take maximum advantage of booming conditions, compared to the slower process of building a start-up platform.
However, Noonan and other initiatives looking for a viable platform to build out face a scarcity factor.
Blue chip E&S writers such as RLI or Markel are not a realistic proposition, while HIIG has just undergone a recapitalization and change of leadership, and up-for-sale entities such as Hallmark Financial come with significant legacy challenges.
The situation is also complicated by uncertainty over Covid-19 exposures and developing reserves at many carriers from the latter years of the soft market, despite the huge rate increases they are now achieving on their underwriting portfolios.
Noonan had recently been linked with a move for the US E&S operations of StarStone. The executive had a brief stint at the Enstar-owned carrier last year as chairman after leaving Validus following its $5.6bn acquisition by AIG in 2018.
As previously reported, PE interest in the sector – especially the booming E&S market – has surged as the Covid-19 effect has accelerated a pricing environment that was already entering hard territory.
This publication revealed this morning that former Arch chairman and CEO Dinos Iordanou and erstwhile Axa XL CEO Greg Hendrick are looking to create a $1bn carrier start-up backed by blue chip PE players that would look to target the E&S market as well as other attractive areas.
Hellman & Friedman and The Carlyle Group are the investors linked with that project, but other firms thought to be waiting in the wings include Blackstone, Warburg Pincus, Madison Dearborn, KKR, Further Global, Gallatin Point and Aquiline Partners – the PE firm that backed Validus when it launched.
The Insurer also revealed today that Lloyd’s insurer Ark is looking to raise $750mn to $1bn of PE capital for a Bermudian Class 4 vehicle to capitalize on specialty (re)insurance opportunities.
Sources have said the larger PE firms are prepared to combine to write cheques of that size or more for the right E&S opportunity if they can identify a suitable management team.
Exec chairman role
It is likely that Noonan would seek an executive chairman-type role as part of a management team targeting a platform for growth.
It is not known if the executive has identified a management team to work with, although sources have inevitably linked him to former colleagues at Validus, the Bermuda Class of 2005 reinsurer he launched with Aquiline Partners and $1bn of start-up capital.
Founding or early stage colleagues at the Bermudian included Jeff Consolino – currently CFO at American Financial Group – and Kean Driscoll, who stayed at Validus after the AIG acquisition and is now global CUO for property at AIG.
Noonan led Validus as CEO from its foundation, with the Bermudian seen as a top of the class performer among the start-ups that launched in 2005 in the wake of Katrina, Rita and Wilma.
Although it launched with a strong reinsurance focus in Bermuda before securing a specialty London platform with its deal to buy Talbot in 2007, Validus added an E&S platform on the ground in the US with its acquisition of Western World in 2014 for $690mn.
The company also built out a meaningful third-party capital platform with AlphaCat.
Validus is seen as one of the success stories of the Class of 2005 under the stewardship of Noonan.
In an investor presentation ahead of its $5.6bn acquisition by AIG, it reported that between its launch and 2018 it delivered adjusted compound annual growth of 13.4 percent.
Noonan was not available for comment on this article.
The Insurer Comment
The hard E&S market is understood to be the subject of widespread investor interest, including from pension funds and private equity firms.
Senior wholesale broking sources have said that, after a slight blip connected with the Covid-19 outbreak, momentum has again picked up after a record 2019 that saw soaring submission levels and flow into the non-admitted market.
That momentum is being driven by capital constraints in the broader P&C sector and has meant the trend seen last year of retrenchment and cutting back on limit has continued, creating more flow into the E&S market.
The expectation is that hard conditions in the E&S market will be sustained for the next 18 months to two years at least.
And the quickest way to access that opportunity is likely to be through the acquisition of an existing platform that can be scaled up with new PE backers.
Finding a viable, clean E&S platform will not be easy however and the scarcity value is high. The premium players are likely to be unavailable, or prohibitively expensive.
That means a small, niche, specialist with the capacity for a meaningful build-out is likely to be a more realistic option, or an entity that can be quickly “cleaned up” and repurposed.