Seizing opportunities

Marc Grandisson, Arch Capital’s chief executive officer, explains how the group seized the moment in 2020 to raise $1 billion on fresh capital to pursue its growth strategy.

“This is a business where relationships matter.”
Marc Grandisson, Arch Capital Group

How much capital did you raise, and how?

In June 2020, Arch issued $1 billion of 30-year senior unsecured notes. We elected to tap the long-term debt markets with rates at historically low levels because we believed that improving conditions in our insurance segments would allow us to invest in our businesses at attractive returns for our shareholders.

Who are the main investors?

Arch is well-known in the fixed income community given its highly rated debt. A diverse group of investors from around the world, including pension funds and large mutual funds, purchased this debt.

Have you hired any new key figures/senior management to deploy?

Because we used this capital in a variety of ways, it’s difficult to align any specific hires to this raise. However, Arch is always on the lookout for talent. We firmly believe in building our own talent base by recruiting individuals directly out of college with backgrounds in mathematics, data analytics and a host of other fields.

“Our expectation is that the P&C market and rates will continue to harden in 2021.”

What is your initial business plan for how you will deploy the funds?

With interest rates as low as they were, we saw an opportunity to raise capital to invest in new opportunities to expand our business depending on how the year progressed. We recently announced the purchase of a 29.5 percent interest in a France-based insurer, Coface, for an aggregate $520 million.

Coface is a leader in global trade credit insurance and we are excited about the opportunity to partner with this transformative management team.

Additionally, Arch recently announced its purchase of Westpac LMI, an Australian mortgage insurance captive for just above $200 million as well as our plans to increase our investment in Watford Holdings, pending shareholder approval. While there is likely to be some funds left over, we have already allocated a large portion of the debt raise.

Why did you feel now was a good time to raise additional capital?

The lower interest rate environment, combined with our recognition of the improving P&C market, made a strong case for expanding our capital base to better position our company for growth.

In addition, across each of our segments, we see growth opportunities and improving underwriting margins. These positive trends have encouraged us to flex into the market, and we believe the returns on these investments will more than compensate us for the additional interest expense.

“There is so much untapped potential within our industry that we’re committed to exploring.”

Why did you choose your Bermuda entity to do so?

Being headquartered in Bermuda and raising funds here provides the most flexibility to invest those funds anywhere in the world.

What has been your experience of Bermuda so far in terms of ease of doing business?

As part of Bermuda’s Class of 2001, we feel Bermuda is part of our story and we’re part of Bermuda’s story. Bermuda has proved to be a great place to live and conduct business.

Although the current COVID-19 environment means we’re doing things a little differently at this moment, Bermuda is uniquely positioned, both geographically between Europe and the US and in the minds of clients and brokers. They can come here and talk to a significant number of their providers within a square mile.

Bermuda’s regulatory environment manages to be strong while also maintaining flexibility to operate and innovate in our businesses in order to bring value to our customers. We’ve found the Bermuda Monetary Authority to be collaborative and willing to take the time to understand our business model, which is critical to successfully compete with the best insurers around the world.

What are your predictions for reinsurance market conditions in 2021?

Our expectation is that the P&C market and rates will continue to harden in 2021. A combination of social inflation, increased cat activity of the past several years and anaemic investment yields will require more focus on underwriting profits for the foreseeable future.

What are your medium-term objectives as a business?

In the near term, we want to make sure that we’re leaning into the market opportunity that is here today and investing in places where the market is evolving. With three core businesses (insurance, reinsurance and mortgage insurance) plus our investment arm, we have to maintain a keen understanding of where each business sits in the underwriting cycle and then deploy our capital dynamically to generate above average returns.

More broadly, we’ll continue to increase our investments in data analytics. We’ve had a lot of success in using data analytics to help our employees and our clients. Whether it’s using information to help our underwriters reach underwriting decisions more quickly or supplying our managing general agents and cedants with additional data and insights that allow them to better manage risk, there is so much untapped potential within our industry that we’re committed to exploring.

Finally, we’ll continue to strive to be the first call for our clients. Even with increasing automation and reliance on the data I mentioned before, this is a business where relationships matter. Our goal is to be an indispensable resource for our clients across all lines of business.

Whether it’s looking at a specific opportunity, answering a general question or trying to develop a solution to a complex problem, Arch should be the go-to resource.

Image courtesy of Shutterstock / Albert Beukhof / Super Prin

In association with:

A Bermuda:Re+ILS Special Report