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Pair of E&S carriers could breathe life into insurance IPO market


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Pair of E&S carriers could breathe life into insurance IPO market

InsuranceIPOs have been few and far between of late, with only one insurer making it to theIPO market in 2015 and none so far this year. But that may change soon if two excessand surplus insurance carriers that filed registration statements follow throughon their plans to go public.

, which accounted forabout 2.9% of direct premiums written by the U.S. E&S industry in 2015, is planning a second at listing on a public exchange ina move that will allow Fosun InternationalLtd. to divest an undisclosed amount of stake in the insurer. The Bermuda-basedinsurer previously filedfor IPO in 2014 but it later backedout after Fosun announced a deal for the company. The Chinese investorpurchased the entire stake in Ironshore in twostages.

to offer 5 million common sharesitself, and Moelis Capital PartnersLLC will offer an additional 1 million of the pure-play E&S writer'sshares in the offering. The majority shareholder seeks to cut its stake in Kinsaleto 47.2% from 68.2%. If underwriters exercise an overallotmentoption of 900,000 shares, Moelis' stake would drop to 42.9%. The IPO, expectedto be launched July 28, would value Kinsale at $293.6 million to $335.5 million,based on the estimated IPO price range of $14 per share to $16 per share and 20,968,750outstanding common shares following the offering.

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BothIronshore and Kinsale have made rapid strides since their formation, growing ata faster pace than some of their established P&C peers in the E&S space.

Brokersand risk managers sought to limit their exposure to leading P&C insurers inthe aftermath of the financial crisis, and underwriters looked for a safer abode,Ironshore said in a registration statement filedJuly 22. Founded in December 2006 with more than $1 billion in private equity backing,Ironshore took advantage of those conditions to win business and hire underwritingtalent.

Ironshoregrew its annual gross premiums written across all lines of businesses to $2.16 billionin 2015 from $383.1 million in 2008, representing a compound annual growth rateof 28.1%. About 64.8% of its gross premiums written in 2015 were generated by Ironshore'sU.S. operations, conducted through IronshoreIndemnity Inc. and IronshoreSpecialty Insurance Co. The insurer wrote about 72% of its 2015 U.S.gross premiums on an excess and surplus basis.

Ironshore'sU.S. operations combined to report direct premiums written of $870.9 million in2015, growing their E&S business at a compound annual growth rate of 9.32% from2011 to 2015, versus the 6.91% growth rate posted by the industry, according toSNL data.

Kinsale,founded in 2009, clockeda considerably higher compound annual growth rate of close to 49% during the pastfour years, reporting direct premiums written of $176.0 million for 2015. The insureralso boasts high underwriting profitability and return on equity ratios. It produceda combined ratio of 60.6% and an ROE of 21.6%. The combined ratio was 77.5% for2015, after excluding the impact of a multiline quota-share reinsurance agreement.

Ironshore'scombined ratio across U.S., Bermuda and international businesses was 93.7% for 2015,while its non-GAAP operating return on average shareholders' equity was 8.0%.The insurer said it will target a combined ratio "in the high 80% to low 90%range for all lines combined through all insurance market cycles."

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E&Scarriers serve businesses or individuals that standard carriers are typically unwillingto underwrite. They have historically operated at lower loss ratios and higher marginsthan standard carriers that are subject to rate and form regulations, Kinsale saidin its filing.

In recenttimes, the E&S market has proved to be a somewhat popular space for M&Aand IPOs. The Hartford Financial ServicesGroup Inc. in March announced a deal for NorthernHomelands Co., the holding company of Maxum Specialty Insurance Group.More recently, Navigators Group Inc.has been the subject of deal speculation. The company engaged in informal discussionsfor a potential deal with Asian buyers, TheInsurance Insider said,citing DealReporter.

At leasttwo of the five insurance companies that have become publicly traded companies since2014 operate in the E&S segment.

James River GroupHoldings Ltd., which completed its IPO in December 2014, wrote $308.7million of E&S direct premiums written in 2015. Conifer Holdings Inc., which went public in August 2015,reported $28.6 million of direct premiums written on its E&S business in 2015.

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Click here for a template showing E&S market share for P&C groups and individual companies, with separate tabs for all 50 U.S. states.

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