Legacy heavyweight RiverStone International will soon acquire a US platform, alongside efforts to build out its young Bermudian and European operations, as it seeks to diversify its deal origination beyond its recent key growth driver in Lloyd’s.
Speaking as the firm reported strong 2023 results, group CEO Luke Tanzer told Insurance Insider that RiverStone International is looking to build out a global business to deliver diversification, with an Asia Pacific unit likely to be set up or acquired in future.
“Expanding into the US, Bermuda and Europe is strategically important as these new platforms allow us to access new geographically diversified business, reducing the reliance on any given market and the impacts of local business cycles,” the RiverStone International CEO said.
RiverStone International reported a $230mn pre-tax profit adjusted for unrealised investment gains/losses, up 56% year-on-year. The group reported an adjusted operating return on average tangible equity of 14.3%.
The group’s result was driven by a 4.4% underwriting return on reserves in line with the 2022 result, and increased investment income.
All told, the group took on $2.2bn of net claims in 2023 across seven closed deals, down modestly from $2.3bn in 2022 on the same deal count.
Tanzer told this publication that the deal to acquire a US platform had been signed in the first quarter, but it would not be formally announced until regulatory approvals had been secured. The deal comes after RiverStone International established a Bermuda platform in 2022 and completed the acquisition of Catalina’s Irish operations in February.
However, he said that after significant growth since the group was created via the separation of RiverStone in 2021, 2024 was likely to be a “consolidation year”. Tanzer added that the reserves that run off during the year are likely to be replaced rather the firm putting up large net growth.
In a wide-ranging interview, the RiverStone International chief also:
Said that Lloyd’s deal activity would bounce back in a couple of years, but was inevitably going to come down from cyclical highs around 2022
Discouraged a broad macro interpretation for the challenges faced by peer companies, arguing that company-specific reasons were the biggest drivers, with some contribution from leadership being “spread thin” in the segment
Argued that well-performing legacy businesses will have optionality around future ownership, while stressing that longer-dated, lower return hurdle funds like CVC’s Strategic Opportunities Fund were a good fit
Maintained that pricing of legacy deals did not move materially in H2, despite a series of transactions being brought to market and not consummated
Lloyd’s legacy: A couple of years to bounce back
RiverStone International has drawn attention from peers for a succession of transactions at Lloyd’s with the likes of MS Amlin, Argo and Hamilton that created the impression at one point that it had cornered the market. RiverStone Syndicate 3500 reported claims outstanding of $4.4bn at year-end 2023, up from $722mn at year-end 2020.
Tanzer traced RiverStone International’s heavy bet on the Lloyd’s market back to the 2018 deal it did with former Fairfax Financial stablemate Advent, when the Lloyd’s business was placed into run-off. RiverStone took on both a lot of the staff and the liabilities, and this provided it with a “springboard” for the glut of deals to come, Tanzer explained.
“So we were very fortunate within Lloyd’s that we timed our growth very, very well,” he said. “We managed to build up steadily to a stage where we were already over scale from both a capital diversification and also from an operational side to really take advantage of the larger deals when they came.”
Tanzer explained that its greater scale at Lloyd’s gave it a lower cost of capital versus peers and improved operational efficiency, putting it in a position to outcompete others for deals while hitting return hurdles.
“It makes sense for us to be very keen and active in that market,” he concluded.
RiverStone Syndicate 3500’s results for 2023 show a profit of $306mn, with a balance on the technical account of $138mn.
Deal volumes in Lloyd’s fell substantially last year, with activity confined to smaller deals.
Questioned about the drop-off in deal activity and prospects for a bounceback, Tanzer said: “It will take a couple of years because there was so much business transacted. You can’t transact that volume every year.”
But he stressed that alongside the recent cyclical high in business, there was an underlying flow of business that would continue, with good businesses looking to optimise capital and free up claims bandwidth to focus on more recent years.
A micro not a macro malaise
Insurance Insider heavily catalogued the travails of the legacy sector in a deep dive last year, and recently followed Fleming’s efforts to renegotiate its deal to acquire James River Re.
A slew of legacy businesses have run into challenges, including R&Q, which is fighting for its very life. Others include Darag, which attracted weak interest through a sale process and has since pivoted to a break-up strategy. Catalina, meanwhile, has largely repositioned its business model to focus on life.
Questioned on the overall factors driving the dislocation, Tanzer rejected the idea that most of the issues could be explained via an overarching interpretation. “I don’t think that there is a macro thing going on. I think it is very much micro – and if you look at each case of company in trouble, you will find an underlying or historical reason why.”
Tanzer argued that it was a mistake to lay blame at the doors of capital providers, despite an influx of private equity capital between 2017 and 2020.
The RiverStone International CEO said that private equity does not typically allow management teams spend their money “willy nilly”, and that he thinks most of the institutional investors are “pretty sensible owners”.
Tanzer said one common factor that may explain some of the struggles is that “the market has been spread a bit thin” on talent when it comes to assessing deals. This was a function, he said, of the rapid expansion of the sector via new players.
“Probably there were too many start-ups trying to take advantage of quite a narrow corridor,” he observed.
A natural owner for legacy businesses
Insurance Insider has previously argued that it is difficult to identify the natural owners of legacy businesses. This reflects Enstar being valued at a discount in public markets despite high total value creation, live business models not mixing well with legacy, and private equity requiring growth regardless of market conditions.
RiverStone International is held in CVC’s Strategic Opportunities fund, a vehicle with a longer time horizon and a lower return hurdle than a typical buyout fund.
“[StrapOps funds] are a natural owner for legacy,” Tanzer said. “I’m not too concerned [about ownership long term]. We are delivering double-digit returns, and if you’re a good business people will want to buy you.”
He continued: “It’s not hard to sell when you’re actually doing well. So it’s our job to optimise our capabilities and become as efficient as we can – to focus on being as good a company as we can be, and telling that story to the marketplace.”
Tanzer said, though, that discussions around an ultimate exit are still in the future for RiverStone International with the business less than three years in with CVC, suggesting it was premature to discuss IPOs or any other possible path to liquidity.
“Healthy” risk appetite remains despite pulled deals
As previously reported, a phenomenon emerged in the second half of 2024 where major legacy deals were brought to the market and then not transacted. Cedants that brought deals to market but did not transact included Axis and Sompo International, although this publication is aware of at least two other reinsurers that did the same.
Tanzer said that he would not be drawn on specific deals that RiverStone may have looked at, but rejected the idea that legacy pricing had moved substantially near year-end, opening up a significant bid-ask spread.
Instead, he argued that broadly speaking when deals had been marketed but not closed, it reflected the unattractiveness of specific deals.
Some of the books brought to market reflected an attempt on the part of counterparties to see if the legacy market would effectively take charges out of their results. “But that’s just putting [reserve charges] into our results. And we’re not going to do that unless we charge a significant risk premium, which is going to make it unattractive to the seller.”
Tanzer said that if some of the deals were brought back with broader, more diversified books of business and more time to transact, then potentially there would be a path to getting transactions done.
“There is a good healthy risk appetite in the legacy market, but it’s not a “do everything at all costs” approach,” he concluded.
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