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New Bermuda insurer adds to cat capacity

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New Bermuda insurer adds to cat capacity

HAMILTON, Bermuda—New Bermuda-based property insurer Ironshore Ltd. and its $1 billion in capital will find a warm welcome in today's capacity-constricted catastrophe market, say observers.

"It's just good news, I think, for our clients," said Charlotte Stone, Los Angeles-based managing director of Arthur J. Gallagher & Co.'s worldwide property practice.

"Any time you bring in new capacity, it's extremely helpful to clients," many of whom have been unable to find adequate catastrophe coverage, said Suzanne Douglass, New York-based managing director of property for Willis North America. "I expect they're going to be extremely busy over the next couple of months."

"We're obviously very excited about our prospects," said Ironshore chief executive officer, Robert V. Deutsch. "We think it's a great time to be entering this business. We've got a good team. We're already up to nine employees, and we're quoting business as we speak."

Ironshore announced last week that it has raised more than $1 billion through a private placement of its equity securities and will begin writing immediately through its Bermuda-based insurance subsidiary, Ironshore Insurance Ltd.

Ironshore's chairman is Robert Clements, who is also chairman of New York-based insurance brokerage Integro Ltd, a sponsor of Ironshore. Mr. Clements and his son, John, are partners in Greenwich, Conn.-based Tara Investment Partners L.L.C., which arranged Ironshore's financing.

Ironshore will initially focus on commercial risks with wind exposures in catastrophe-prone coastal states, such as Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina and Texas as well as the Caribbean and Yucatan Peninsula, according to the company. It will also provide commercial earthquake coverage in California.

The company will offer a maximum limit of $50 million, said Mr. Deutsch, who has held several senior position in the in insurance industry, including chief financial officer of CNA Financial Corp.. The insurer expects most of its policyholders to be midsize businesses, he said. "The pricing, in terms of the risk/reward relationship, is more attractive" on some of the smaller accounts, said president and chief underwriting officer Leslie J. Rock, a veteran Lloyd's underwriter.

"No one expects this to be cheap capacity," said Willis' Ms. Douglass. "We wouldn't expect there to be capital market support for something like that," she said. "It's not just a pricing issue. For many of our clients, as much as pricing, it's just the capacity itself" that is the issue.

Ironshore's capacity is welcome "after the year we saw last year, with the contraction in capacity, particularly along the Gulf Coast and the lower southeast Atlantic coast, which is exactly the area that they're targeting," said Ms. Douglass, who plans to meet with Ironshore officials this week.

All business will be written initially in Bermuda on a nonadmitted basis, although the insurer plans to open a Lloyd's of London syndicate later this year, said Mr. Deutsch. "We think there are some good opportunities there," he said.

Ironshore does not plan to buy reinsurance. "We're keeping it all net," Mr. Deutsch said.

The insurer plans to obtain a rating from Oldwick, N.J.-based A.M. Best Co. Inc. by March, said Mr. Deutsch. It will seek ratings from other agencies "as appropriate, further down the road."

Paul Markey, chairman of Aon Re Bermuda and managing director of Aon's global market relationships, said the billion dollars in capital raised by Ironshore gives the market and Aon's clients a "good feeling that they're well-capitalized for the type of business they've so far indicated they would do. That's always a very good first step."

Mr. Deutsch said that while Ironshore's primary focus, at least for the first year, will be property cat business, over time, catastrophe business will account for "a much smaller proportion," and the insurer will be writing a worldwide diversified property book of business.

At the moment, Ironshore has no plans to expand into casualty business, although it might in the future, he said. "We've talked about that," said Mr. Deutsch. "We would entertain that in a few years' time provided we had the underwriting team to do so."

According to Mr. Deutsch, the company is here for the long haul. "I think none of us are planning on retiring any time soon, and none of us are planning on any other employer. I think you'll see us here for some time," Mr. Deutsch said.

Ironshore "is intended to be a permanent company" that will last decades, said John Clements.

Integro's involvement with Ironshore should not raise any conflict-of-interest issues, Ironshore officials and observers say.

Mr. Deutsch said he expects Mr. Clements to step down as Ironshore's chairman in a "relatively short period of time."

Furthermore, Integro is "a sponsor, but in terms of the go-forward relationship, Integro is not a shareholder, and they are being treated like every other broker," said Mr. Deutsch.

Integro came up with the idea for Ironshore and assisted in its formation, but is not an investor, according to John Clements.

"We underwrite business that Integro brings us, but there's no obligation on either party to do business any differently than any of us would do with any other broker, or any other insurance company, in our case," he said.

"It's not an issue for us," said Ms. Douglass. "If there's capacity out there, and our clients need the capacity, and it's rated capacity, then we will certainly place it regardless of who helped put it together."

Ironshore's primary investors, who together account for more than $900 million of its more than $1 billon in capital are: BSMB, a private equity affiliate of The Bear Stearns Cos. Inc., which is based in New York; Corporate Partners II Ltd. in New York, a business unit of Lazard Alternative Investments L.L.C.; San Francisco-based Fremont Partners; New York-based TowerBrook Capital Partners L.P.; and New York-based Greenhill Capital Partners L.L.C.

Tara Investment Partners' investment "is a tiny, tiny fraction of what the other five guys contributed," said John Clements.