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Wave of new reinsurers rush to launch IPOs

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Recent moves by the latest crop of startup reinsurers to go public did not take market observers by surprise, but they did come sooner than expected.

More than a dozen reinsurers were formed in the wake of Hurricane Katrina and the other devastating storms of 2005. Many now are rushing to launch initial public offerings of stock, and with good reason, analysts say.

Industry losses stemming from natural catastrophes in the United States were $9 billion last year, the lowest since 2002, according to data from the Insurance Services Office Inc.'s Property Claim Services.

On the heels of the mild 2006 storm season, and amid a hard rate environment for the property catastrophe reinsurance coverage that many of the startups offer, the time is right to seek public funding, the analysts say.

Last week, two companies--Validus Holdings Ltd. of Bermuda and Cayman Islands-domiciled Greenlight Capital Re Ltd.--said they were launching IPOs to raise up to $200 million and $175 million, respectively.

Earlier this month, Hamilton, Bermuda-based CastlePoint Holdings Ltd. filed a registration statement with the U.S. Securities and Exchange Commission for an IPO to raise up to $50 million.

Of the most recent startups, Bermudian company Flagstone Reinsurance Holdings Ltd. was the first out of the gate--filing an IPO registration statement last October to raise up to $175 million.

"I'm not surprised that we are hearing about these IPO's," said Laline Carvalho, a credit analyst and director at Standard & Poor's Corp. in New York, in a statement. "These companies had a very good year because we didn't see a lot of catastrophe losses...that makes their prospects for an IPO more favorable."

Timing, climate combine

"The timing (of an IPO) depends a lot on the market...and market conditions are favorable at this point," said Robert DeRose, assistant vp, reinsurance ratings, at Oldwick, N.J.-based A.M. Best Co. Inc.

"Capacity is still tight right now in the property catastrophe market, and that's in contrast to some pretty significant rate pressure in other lines," said Mark Rouck, a senior director at Fitch Ratings in Chicago.

"Back when these companies were formed and started getting put into place, we said that we thought their goal ultimately was to conduct IPOs," said Mr. Rouck. "It has happened maybe a little bit earlier than we thought. We were thinking more along a three- to five-year time frame."

Ms. Carvalho noted that the investment climate for the newest startups has changed greatly since the period following the Sept. 11, 2001, terror attacks when a number of reinsurers formed.

"There is definitely a different group of investors for the class of 2005," which are mainly hedge funds and private equity firms, she said.

"There is the general view that the people who are looking at these companies are generally looking for shorter-term investments," Ms. Carvalho said. "The time horizon of the investors may not be as long as an insurance broker that may have invested in a startup company many years ago and kept that investment" for a longer period of time.

"We will likely see more" IPOs in the coming weeks and months from the latest group of startup reinsurers, Ms. Carvalho said.

"If they didn't conduct an IPO right now, there is still somewhat a window of opportunity" to do so, said Mr. Rouck, though he noted that it "gets harder to do as hurricane season approaches."

"It might die down when you get to the April, May, June time frame," Mr. Rouck said.