New insurer and reinsurer Vantage Group Holdings Ltd. is buying excess and surplus lines, or E&S, and admitted insurance company shells in the U.S. as it prepares for a three-stage launch of its insurance business, according to CEO Greg Hendrick.

Bermuda-based Vantage, which is backed by $1 billion in capital from private equity firms Carlyle Group Inc., Hellman & Friedman LLC and management, is one of three new companies that started writing at the Jan. 1, 2021, reinsurance renewals along with Conduit Holdings Ltd. and Inigo Ltd. The companies, which aim to take advantage of rising prices, are all helmed by insurance industry veterans — Hendrick is the former CEO of AXA XL, and Vantage's chairman is Constantine "Dinos" Iordanou, former CEO of Arch Capital Group Ltd..

Three stages

Vantage said when it launched formally on Dec. 3, 2020, that, following its reinsurance debut, it would launch insurance products in Bermuda and North America in 2021. Hendrick said in an interview with S&P Global Market Intelligence that the company is "in a bidding process" to acquire the shell of an admitted insurance carrier and is seeking approval in Illinois to buy an E&S company shell. Hendrick said the E&S company had never been used, and the "two or three things we have in front of us" on the admitted side have not been used in over a decade.

He said that Vantage had explored the idea of buying fully operational companies to speed up entry into the market but that "we just felt it wasn't the right use of our capital." One of the company's advantages, according to Hendrick, is its lack of legacy technology and "we didn't want to give that up."

The company should be "ready to go" with directors' and officers' liability, excess casualty and healthcare liability on the E&S side in the U.S. by mid-April 2021, Hendrick said. In June, Vantage will "have underwriting talent onsite" in Bermuda to write professional lines and excess casualty insurance for the large corporate clients that have typically bought their cover there. "The admitted carrier will come later, I would say towards the end of 2021" Hendrick said.

The start in the specialist E&S insurance market in the U.S. rather than the larger, generalist admitted market should not hamstring the company, Hendrick said, because "so [many] of the risks are going into the E&S market because the admitted carriers have pulled back." E&S insurers' greater freedom to set prices and wordings allows them to write business that their admitted peers find unpalatable, and some areas of the U.S. casualty market, in particular directors' and officers' liability, have become challenged following years of underpricing and rising claims trends.

Hendrick said that while Vantage did not currently need an admitted carrier, in around 18 months business may start flowing back into the admitted market and "we want to be ready to be able to execute in both [areas]."

Next steps

While Vantage made its debut in reinsurance, Hendrick said that given the opportunities available, the company will be roughly 30% reinsurance and 70% insurance, but he added: "That could change, though, if the economics and dynamics change in those marketplaces."

He declined to reveal how much reinsurance business Vantage had written on Jan. 1, but said the company received 200 submissions for property-catastrophe business and was "just about spot on what we planned to underwrite in terms of premium income."

He said pricing at Jan. 1 was "what we expected but not quite what we hoped for," although "definitely improved" in the property-catastrophe and specialty reinsurance business Vantage is targeting, giving the company "a margin we find very acceptable and willing to write into."

Hendrick said that the company is able to boost its capital to $1.3 billion or $1.5 billion over time "assuming we can show the profitability and margins are there." He added: "At some point in the near to mid-term we will be able to demonstrate that profitability and be able to access more capital together with our shareholders."

The next steps will be adding more products and growing its participation in the insurance-linked securities market, having been active "in a modest way" at Jan. 1 through a collateralized reinsurance vehicle, AdVantage Retro I. While not currently a focus, Hendrick said that the company "will definitely look at" setting up at Lloyd's of London in the mid-term. He added: "I am a big supporter of the London market and what John Neal is trying to do at Lloyd's."