Watford Specialty Looking to Build Program Business with U.S. Acquisition

By | August 17, 2016

Newly formed Watford Specialty Insurance Co. (WSIC), a subsidiary of Bermuda-based Watford Re, took a big leap forward recently with its acquisition of a carrier with admitted licenses in all 50 states and the District of Columbia.

The previously dormant company, called Professionals Direct Insurance Co., was purchased this month from The Hanover Insurance Co. for an undisclosed amount and renamed Watford Insurance Co. (WIC).

Alexandre Scherer, president and CEO, Watford Holdings (US) Inc., the parent of WIC and WSIC (both headquartered in Morristown, N.J.), said the aim of the purchase is to help it build its program business.

“The acquisition and resulting expansion into the admitted market is an integral part of Watford Re’s plan to seize opportunities in the U.S. direct market and is consistent with Watford Re’s overall strategy of building a diversified and profitable portfolio of insurance and reinsurance business,” said Scherer.

The acquisition “is part of the implementation of our strategic plan, which entails rolling out direct underwriting capabilities in the U.S. and Europe,” he said. “We looked at various options and decided that buying a dormant company with existing licenses made the most sense.”

In an interview with Insurance Journal, Scherer explained how the acquisition will help build relationships with program managers.

“There are many factors that motivate program managers to partner with an insurer. One of them is the ability to place their business with highly rated and clean carriers that afford the flexibility to access both admitted and E&S markets,” he said. “Since WSIC was launched, the company has made formal agreements with three program managers.”

He explained that WIC is looking to write all lines of business with a focus on long-tail risks, which is consistent with Watford Re’s overall strategy. “We are interested in working with program managers who have recognized expertise in their fields and a solid reputation both in terms of underwriting and quality of service,” he said

WIC offers capacity up to $25 million with the possibility of larger lines for unique situations.

Watford Re’s Footprint

Watford Re is building its global footprint. WSIC was launched earlier in 2016 as an excess and surplus lines insurer, which started underwriting in the second quarter of this year. And, now with WIC’s licenses, the company also has a platform to build its U.S. admitted business.

In addition, it currently underwrites in direct markets in Europe, through Watford Insurance Co. Europe, launched in July 2015.

Scherer noted that Watford Holdings (US) has entered into a long-term partnership with Arch Underwriters Inc. (AUI), a subsidiary of Arch Reinsurance Co., which originates, underwrites and administers Watford’s U.S. businesses.

“This unique partnership enables Watford Holdings (US) to leverage AUI’s market knowledge and contacts among program managers,” he added. “We believe another important motivation for program managers to work with a given insurer is the quality of the personal relationship measured in terms of attentiveness and responsiveness. AUI offers just that.”

Strength Through Diversification

Further, he said, the ability to write direct business in addition to reinsurance provides diversification in terms of the source and type of business, which makes Watford U.S. less dependent on a particular market and creates a stronger business platform.

“We don’t expect Watford to become a large organization in terms of headcount,” he said, noting that the company’s “ability-to-scale” is bolstered by its partnership with Arch.

“Arch has great bench-strength in all areas and their ability to recruit new talent is exceptional. In terms of capital, Watford Re has enough to support its planned growth for the foreseeable future given the current market environment.”

Navigating the Cycle

Scherer admitted that some may question why Watford Re is pursuing new ventures at this moment in the soft market cycle, which is difficult for even established carriers to navigate.

“The market always offers opportunities but admittedly those opportunities are fewer and more difficult to identify in the soft part of the cycle,” he said.

“Watford has an asset management strategy based on fixed income with an emphasis on yield and careful liquidity planning that differentiates it from other insurers. We believe the combination of Watford’s financial structure and Arch’s underwriting prowess makes us uniquely positioned to successfully navigate the insurance cycle.”

Commenting on the recent acquisition of Professionals Direct Insurance from The Hanover, Scherer noted that WIC is protected from any pre-acquisition business liabilities. These liabilities are covered by a 100 percent quota share agreement with The Hanover, which will not have any liability for, or interest in, business written by WIC.


Topics USA Carriers Mergers Excess Surplus Europe Underwriting

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