“Several Bermuda reinsurers have been active recently in issuing
preferred shares and convertibles, for example. “Banks also play a key role when it is time to shrink your capital, so
if a reinsurer reaches a point where it has excess capital, banks can also help with strategies around transactions such as share buy-backs and special dividends.”
A successful capital-raising exercise solves the requirements of issuing clients
while also appealing to investors, argues Tom Spreutels, director at Citigroup. “You need to structure it in a way that investors will want to buy it,” he says.
“It helps to have a fi xed-income division that is well connected to the investor market, so you have a good idea of the type of structures they want.”
“DCM teams with expertise in insurance transactions are vital in helping issuing clients to balance achieving the necessary capital treatment with the need for cost-effi ciency, particularly as they are facing a rapidly evolving regulatory landscape.”
“Market intelligence is essential when it comes to structuring transactions.
Clients need to be able to trust that dealers are able to execute on a proposed structure. All the structuring creativity in the world doesn’t help unless it is executable at a reasonable price.”
“This is why this kind of business is best done by banks with large
distribution platforms. People who only have experience in structuring transactions fi nd it very diffi cult, because they tend to have no idea what the investor is actually looking for.”
When raising capital, one critical issue can be the problems that arise
if a company is trading below book value, according to Paul Schultz, president of Aon Benfi eld Securities.
“If you consider where most reinsurers are trading, it is below book
value,” he says. “This means to issue fresh equity capital in today’s market will dilute your current shareholders.
“If you think about when a company is valued, you have to take
into account the growth opportunities available in the market and the differentiation of the management team, along with the premium shareholders are willing to pay to buy that stock.
“Most of the market is focused on growth, which can come through acquisition or through companies getting into new lines of businesses. All of these companies, whether they are insurers or reinsurers, strive to drive growth, which will then hopefully be refl ected in the valuation of their companies. Clearly, growth is a major issue in this very mature industry
September 2011 | INTELLIGENT INSURER | 35
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