Insider In Full: Convex sets wheels in motion on major capital raise
Convex has launched an equity raise as it targets a significant scale-up of its balance sheet in order to capitalise on improving market conditions, this publication can reveal...
Sources told this publication that a fundraising target has not been released to potential investors, but having originally targeted $3bn at launch before closing at $1.8bn, it seems likely that the (re)insurer will now look to reach that mark.
It is understood that Convex has initiated conversations with a range of private equity (PE) houses, with the additional funding likely to come from a mix of existing and new backers.
Banking sources have suggested that there is around $5bn-$10bn of PE money looking for opportunities in the sector, with a range of fundraises underway from start-up vehicles including those led by Dinos Iordanou and Martin Reith, and "scale-ups" from existing players that include Ian Beaton's Ark.
Convex is in a close-to-unique position as a business with established infrastructure, licensing and underwriting teams, but has minimal exposure relative to the size of its balance sheet from Covid-19.
The business has benefited from an effective soft launch in 2019, with 1 January 2020 its first major renewal date. Only around $250mn of business was written at the January renewal, with the early business mix more oriented to reinsurance where volumes can be ramped up more easily.
Most fundraises will offer either significant exposure to Covid-19 via a major in-force portfolio or the challenges of launching a de novo platform, which typically include early losses as well as a slow build-out particularly in insurance lines.
Sources said Convex is on course to write upwards of $1bn of premiums this year, with accelerating rating momentum and increased business flow into the London and E&S markets boosting top line.
PE houses that have shown an interest in the sector in recent months include Warburg Pincus, Blackstone, KKR, Cinven, Madison Dearborn, CVC and Cinven.
Canadian PE fund Onex, an experienced sector investor, put up the cornerstone investment with $750mn, and Canadian pension fund PSP made a substantial investment. The management team also personally invested $50mn in the business, according to an AM Best report.
The capital was raised with a 10-year investment horizon, significantly beyond a typical three-to-seven-year PE window.
The business has launched across a broad swathe of lines, including property direct and facultative, engineering, property reinsurance specialty reinsurance, political violence, accident and health, political risk, bloodstock and marine.
Catlin and Brand were the key executives that built Catlin Group into a major specialty (re)insurer ahead of its sale to XL for $4.3bn in 2015.
As previously reported, investors offered the chance to participate in the initial Convex fundraise said the plan included a sequence of follow-on fundraises.
The long-term plan at that point was to build out London's leading specialty business with a mature state top line in the region of $4.5bn. Long-term projections from start-ups are subject to a high degree of uncertainty, but the figure is illustrative of the scale of management’s ambition, and reflected a mid-single-digit share of its target markets.
Convex declined to comment.
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