Sources said that Bermudian Arch is also involved in the final stages of the process, as is Ariel's major trading partner, Hampden Capital – the parent company of members’ agent Hampden Agencies.
It is understood that Pelican – an investment consortium backed by a range of big industry names – is being advised by Ryan Mather, the recently departed CEO of Ariel, creating the intriguing prospect of a rapid return for the executive to the business he led for around five years.
Sources have said that seller Argo is targeting a resolution to the process, which is being run by Morgan Stanley, by the end of the month.
The pending divestiture – first revealed by this publication in July – reflects a decision by new CEO Kevin Rehnberg to curb volatility in the business and redeploy capital into its well-regarded US specialty insurance business Colony.
Runners and riders
Reith's bid for Ariel is being carried out in tandem with a fundraise, as the Ascot founder looks for a return to the market. His involvement in the process points to a pivot towards a "buy-in" strategy from a de novo approach which has been replicated across the 2020 start-ups.
Pelican's backers include recently retired TigerRisk chairman and former RenaissanceRe CEO Stanard, as well as the current TigerRisk leadership team Rod Fox and Rob Bredahl and former Executive Risk and Ironshore executive Bob Deutsch.
Pelican utilises deal-specific finance, so no capital has yet been committed to finance the potential Ariel deal.
Arch, meanwhile, is pursuing its second piece of Lloyd's M&A in 12 months after acquiring Barbican and merging it with its existing Lloyd's operation. The Bermudian (re)insurer has been more active in the M&A market since current CEO Marc Grandisson succeeded Dinos Iordanou in 2018.
Hampden Capital owns a number of operating subsidiaries including Hampden Agencies, the members’ agent which connects £3bn ($4bn) of Names capital to Lloyd’s syndicates. The members’ agent itself is not believed to be involved in the talks.
The accelerated timeline partially reflects the need for Ariel to resolve the situation around its third-party capital backing for 2021. Syndicate 1910 is around 40% backed by Names, which creates urgency around the late September deadline.
Argo is retaining Syndicate 1200 – its syndicate which focuses on US insurance – and Argo Managing Agency Ltd. A service agreement is likely to be agreed with whichever party acquires the syndicate, which would see managing agency services provided by Argo.
Ariel
Ariel is currently under interim management following the departure of Mather and his deputy Matt Wilken in June. The team is understood to include Argo International head Matt Harris; Dominic Kirby, who has responsibility for Syndicate 1200; and Darren Lednor – former active underwriter at Ariel 1910 – who has rejoined on a contract basis.
If Ariel changes hands, it will be the fifth time the business has been sold in the past seven years, following a string of deals that included periods under the ownership of Goldman Sachs and Brazilian bank BTG Pactual.
Ariel has had a record of strong outperformance since inception in 2005, but the business – which has a high-severity, low-frequency risk profile – fell to an underwriting loss in 2019 with a combined ratio of 103.3 percent.
Rehnberg did not comment directly on a question about a potential sale of Ariel on the firm's last conference call, but said that Argo had a record – most recently shown with Trident – of looking at its businesses and getting out of underperforming areas, or reallocating capital.
In the fourth-quarter call he stressed that all of the decisions the business was taking were to meet its financial objectives. "To achieve it, we will apply a theme of simplify, reduce and eliminate across all operations. We have already taken swift action in a short period of time to adopt these principles.”
Argo declined to comment for this story.
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