Insurance, whatever the weather

Ark Insurance in 2020 experienced a rebirth of sorts when it received a hefty investment from White Mountains. Nick Bonnar, chief underwriting officer, talks about the benefits.

“The bigger reasons were the business environment in Bermuda and the convenience of its location.”
Nick Bonnar, Ark Insurance

When was the company formed and with how much capital?

Ark is not so much a startup as a scale-up. The business launched in 2007 as a Lloyd’s-based syndicate and managing agency, managing the underwriting of Syndicate 4020 and, from 2017, Syndicate 3902. Part of the original architecture included a Bermuda-based class 3 licensed insurer called Group Ark Insurance that underwrote one insurance contract being a capital quota share of the syndicates business.

In 2014 we executed a management buy-out and partnered with several insurance companies which provided underwriting capital in a similar way that a managing general agent represents insurance carriers. There are vulnerabilities to this business model including the ability for carriers to withdraw support. During 2019 we wished to make Ark less reliant on third party and trade capital and also less reliant on Lloyd’s as our sole underwriting centre.

Our second syndicate launched as a standalone entity in 2017 was part of our strategy of attracting talent (both non-underwriting and underwriting) into an entrepreneurial organisation supported by smart capital allocation.

On October 1, 2020, we entered into a definitive agreement with White Mountains who took a majority stake in the business and invested around $605 million of fresh equity capital, at a pre-money valuation of $300 million, while also committing to invest an additional $200 million of equity capital in 2021 at management’s call. That took Ark’s potential equity to over $800 million—or over $1 billion when you include non-equity. We completed with White Mountains on January 1, 2021.

The plan had four parts to it: to grow Ark’s Lloyd’s business; to increase its aligned capacity at the syndicates to 100 percent; to convert the existing Bermuda reinsurance entity into a class 4 insurer licence; and to recruit talent for Bermuda

Who are the main investors?

White Mountains Insurance Group is Ark Insurance Holdings’ majority shareholder with a 72 percent stake. Ark’s employees hold the remainder of its shares. White Mountains is committed to investing more capital in 2021, at which point it will own 77 percent of Ark on a basic shares outstanding basis, or 67 percent on a fully-diluted, fully-converted basis.

White Mountains has a rich history in the insurance investment space starting with Jack Byrne and Fireman’s Fund in 1985; subsequent investments have included Folksamerica, Esurance, One Beacon and Montpelier Re in 2001, Sirius and Build America Mutual.

What was the inspiration for the name?

Noah’s Ark was the biblical boat built to spare Noah, his family and pairs of the world’s animals from a devastating flood—we wanted to convey a solid platform no matter what the conditions, with people working together for better outcomes.

“Ark will derive its business from US, European and global markets.”

Who are the key figures/senior management?

The business was originally founded in 2007 by Ian Beaton, David Foreman, and myself—Ian and I were at Aspen and David had recently left Wellington. Neil Smith joined as finance director just after we started and since then we have recruited from a diverse background for all the major roles.

In Bermuda where I am currently based, the first employee for Group Ark Insurance was Angus Ayliffe as CFO and COO and we will be joined in Q3 this year by Jeff Clements as CEO and CUO—Jeff was most recently CEO of Validus Re.

What is your initial business plan in terms of target lines of business?

Ark will derive its business from US, European and global markets, writing excess general liability insurance and property, marine, energy, composite and specialty reinsurance. The priority over the next three years or so is to focus on building up its portfolio of business in these areas.

Why did you feel now was a good time to launch a new reinsurer?

We have been planning to apply for a class four licence in Bermuda for a while but have been waiting for the right opportunity. With the investment from White Mountains, and the market hardening significantly, we felt now was the right time.

Why did you choose Bermuda?

We first launched the business in Bermuda in 2007. The fiscal benefits Bermuda offers were of course a factor, especially back then, although that is less of an issue today. Even then, however, the bigger reasons were the business environment in Bermuda and the convenience of its location. Most of our distribution is done via the US and London—Bermuda sits between those two centres so is convenient for both. Bermuda also has a deep talent pool and infrastructure.

“We have in place the talent, platform, capital and rating.”

What has been your experience of Bermuda so far?

As we are not a new company we knew what to expect from the BMA and the experience of applying for a new licence has lived up to expectations. We had to go through the same application process as anyone else, and that is no mean feat: the regulator takes its responsibilities very seriously and the level of professionalism is right up there among the highest levels of global supervision and oversight. At the same time, the BMA is always very receptive to new business and is approachable and easy to work with.

Being a scale-up, rather than a startup, has had advantages in terms of expanding the team with new hires. We are like a startup, but with a 14-year track record of being a top quartile performer at Lloyd’s.

Working with the new platform in Bermuda is an exciting prospect, but it also comes with certain risks. AM Best recognised the existing business and record in assigning a financial strength rating of ‘A’. Ark has an excellent brand and reputation, and it has the backing of White Mountains, all of which are attractive for prospective employees. We also offer something of that sense of excitement, and of building something, that comes from working for a new business.

What are your predictions for reinsurance market conditions in 2021?

The insurance market collectively spent the years between 2014 and 2018 in the doldrums; Lloyd’s was the first marketplace to recognise this so commenced its return to profit plan. Property and specialty were the first lines of business to turn while casualty followed during 2020.

We believe market hardening has a long way to go still due to the range of well documented reasons including casualty loss reserves deficiency, low interest rates, insurance being treated like welfare or maintenance coverage, model parameter inadequacy and climate change—technology, health and safety and risk management have contributed to a lowering of frequency but severity has seen a marked uplift.

This is especially important for excess of loss underwriters and is only going to exacerbate that problem. We think it is a casualty, property and specialty hardening market and feel we are very well positioned to capitalise on this.

What are your medium-term objectives as a business?

We have in place the talent, platform, capital and rating. It’s with all our employees that we can execute our plan but driven by strong management.

In no particular order we will be working heavily on (i) culture and communications; (ii) profit focus not top line premium volume; (iii) enhancing our technology infrastructure, (iv) expanding customer relationships with brokers and end clients; and (iv) growing the Bermuda Island brand of financial services excellence.

We plan to have a team of around 25 people in Bermuda, in functions across the business, including underwriting, claims, finance and operations, modelling, analytics and risk management.

Image courtesy of Shutterstock / Xi kou / oksana2010

In association with:

A Bermuda:Re+ILS Special Report