XL Catlin, 's brand for its insurance andreinsurance companies, wants to become a global player in the mergers and acquisitionsinsurance business, and is chargingBrian Benjamin with making that vision a reality.
Benjamin is XL's new M&Ainsurance global head, and he plans to build and lead a team providing productssuch as representations and warranties coverage to companies around the world.
In an interview, Benjamintalked about his ideas for the just-formed division, the dynamics of M&A insuranceunderwriting and why it makes sense for XL to move into the sector now.
The following is an editedtranscript of that conversation.
S&P Global MarketIntelligence: How did you end up talking with XL about this job, and what made itthe right move for you at this point?
Brian Benjamin: Iwas approached by XL Catlin fairly recently about the opportunity. They've justgone through a transformativeacquisition, and the organization now has a real global footprint andis very well-positioned to capitalize on a very good growth opportunity. That wasimportant for me. And culturally, it is an organization known for being entrepreneurialand innovative when it comes to underwriting risk, and I think these products canfit well within that brand.
What can XL bring to theM&A insurance business, and why is now the right time to get into the sector?
The principal product is representations and warranty insurance.We see tremendous growth opportunity; our current clients are demanding that capability.So it is important that we bring that value to them. Going back to the organization'sglobal footprint, a lot of these products are being applied in the context of multinationaldeals. XL Catlin is well-positioned as we build this practice out to bring thatcapability to clients' operations around the globe.
So what is your startingpoint, then? Are there specific clients or geographies that you are targeting?
We're going to start up the operations in New York and London.The aim is to have capabilities throughout the globe, but we will start in thosetwo geographies and build from there.
And what will the build-outlook like over the next few years?
We're not operational today, so it's just myself. Our aim isto be underwriting business later this year, with the goal of being one of the primarylead underwriters in this space not necessarily on day one, but over time. We justcame off of, by most accounts, a record year in M&A volume. And despite thefact that there has been some decrease in activity this year, I think because ofthe uncertainty coming from the Brexit vote, we see tremendous opportunity for theseproducts. The takeup rate in the U.S. in particular has increased considerably inthe past two years.
What's driving that growthin the takeup rate?
The policies are broader today than what they were 10 or 15 yearsago. Initially, there wasn't perfect symmetry between the stock purchase agreementand insurance policy. But that gap has narrowed tremendously. The number of carriershas increased, so there's more capacity in terms of the limits that can be purchased.And that has had some downward pressure on pricing that has also helped the growthof the product. The level of sophistication withinthe underwriting and broking community has increased tremendously, and there isa credibility component that policies do actually operate in the way they tend to,they are designed to operate.
What does a typical M&Ainsurance client look like? Are there specific kinds of transactions where you seesignificant demand for the coverage?
The products predominantly are used in private transactions.The deal valuations are typically $25 million and north to a $1 [billion], $2 [billion]or $3 billion purchase price. So that rangeis the sweet spot. The beauty of the product is it can be applied across a broadrange of industries. So if you are in an upmarket for one industry and a down marketfor the other, the activity for us shifts, but we still see opportunity. Privateequity firms were really the early adopters of the product. They have been a biguser of the policy and at this conference I was just at illustrated the point tome.
So we have seen a lot of concentration in private equity butwe are seeing the takeup rate among large corporates increase as well. These corporateshave lost out on transactions to financial buyers who were more adept at using theproduct, and once that happens once or twice the deal teams say, "We've gotto figure this out," so we're seeing the use by strategics increase.
Are there any new risksthat you have seen emerge around M&A lately?
There are certain exposures that have emerged around multinationaltransactions and transfer pricing. FCPA [ForeignCorrupt Practices Act] and Bribery Act issues are hot issues.
As far as the underwritingprocess, how much of it is based on data and prior experience, versus you sittingin a room and negotiating what value to assign to exposure?
There is a high degree of art surrounding the business, and thatis why it does require individuals who are well-versed in how transactions are structuredand what is customary in terms of the process. It is important that we be able toadequately assess the risk in the transaction and be comfortable with the termsof our contract.
So I would characterize it as more art than science. That said,there is an element of experience we can bring to the table from past experiencesof deals being done.
So given that, what particulartalent do you still need in building out this team at XL?
In terms of skill set, we are seeking individuals that have considerableexperience with law firms that specialize in mergers and acquisitions. So associate,senior associate-level individuals and then also underwriters that are now in theinsurance industry underwriting these policies. A financial and accounting backgroundis important.