Eklund start-up would likely marry E&S property with retro

Former RenaissanceRe CUO Dave Eklund is considering pulling the trigger on a start-up plan that would include not just an expected retro play, but also a push into the red-hot E&S property insurance space, Inside P&C can reveal.

Sources have said ex-Aeolus executive Eklund is yet to make a final decision on whether to press ahead with the new venture after an abortive run at a retro-only managed-funds start-up last year.

Eklund's discussions around entering the US E&S market to write cat-exposed property policies reflects the expectation of elevated returns following three years of sizeable rate rises, and increases that are currently running comfortably in the 20s, and well beyond this in distressed segments.

If the industry entrepreneur proceeded with the venture, broking sources suggested that he would need to raise $500mn-$750mn to support this kind of plan, as well as tie up with an insurer or fronting company to provide paper.

Eklund has a strong reputation in the retro/ILS sector, but fundraising of third-party capital has been highly challenging, with an extreme reluctance to support new retro plays. This reflects concerns around climate change and recent model misses.

The proposed Eklund vehicle last year was among a number of retro raises that were ultimately pulled. The entrepreneur held advanced talks with PE house Warburg Pincus – a backer of his prior ventures – but talks about a multi-hundred-million commitment are understood to have broken down.

The degree of alignment between underwriters and institutional investors is understood to have been an issue for some ventures.

Equity fundraises for start-ups targeting the US E&S market have been more favorable, with Jeff Consolino raising substantial funds in tandem with Ed Noonan to recapitalise StarStone US, and Dinos Iordanou also lining up funds for a vehicle that has been seeking an acquisition to access the US specialty insurance market.

However, senior sources have pointed out that momentum around fundraising has slowed, with concerns in the private equity community about the magnitude and duration of the rating opportunity, and the scope for a premium exit.

The primary market has been drawing more participation from ILS providers in recent years – spearheaded by Nephila’s launch of Velocity – but it remains a segment that is challenging to tackle with third-party capital, with most other participants failing to make a mark.

The retro market is passing through a period of significant dislocation, as available capacity contracts driven by a combination of challenges in the ILS market and a risk-off mentality around cat risk.

Retro rates are already into their third year of double-digit increases. They surged in the middle of the year following the macroeconomic uncertainty created by Covid-19 and concerns around trapping of collateralised retro capital resulting from property BI tail risk.

The retro market has already rebalanced substantially away from collateralised players, with estimates suggesting that, from an 80:20 split before Hurricane Irma, as much as 40-50% of the $15bn-$20bn-limit market is in the hands of traditional rated players.

Eklund earned his reputation in the cat market in a 10-year stint at RenRe, where he was president and CUO in a period when the business established itself as a cat market leader.

He returned as a co-founder of Aeolus, which initially formed as a collateralised reinsurer with $500mn of capital from a consortium led by Warburg Pincus. Aeolus subsequently converted to become a fund management platform, although it is understood that it is now in the early stages of exploring raising a rated balance sheet.

New company formation within the ILS space has been muted, reflecting the challenging fundraising environment. The most notable launch was Lixin Zeng and Richard Lowther's start-up Integral ILS, which has partnerships with AmWins and TransRe, as first reported by sister title Trading Risk.

Eklund could not be reached.