Fairfax-owned Riverstone’s acquisition of Neon is further evidence of the run-off specialist’s continued appetite for Lloyd’s legacy business.

The deal announced yesterday will see Riverstone acquire Neon’s parent company, GAI Holding Bermuda, from parent company American Financial Group (AFG), finalising the US specialty carrier’s exit from the Lloyd’s market.

Neon and Riverstone – Lloyd's

The transaction – which remains subject to regulatory approval – is set to close in the fourth quarter.

Last month this publication revealed that Riverstone was shortlisted in talks to acquire Neon, which entered run-off in January this year despite the syndicate having its 2020 business plan and capital structure approved by Lloyd’s.

AFG said it expects to release all of its funds at Lloyd’s following completion of the deal, including the release of the letters of credit and collateral pledge facility that AFG guarantees in support of Neon’s funds at Lloyd’s.

TigerRisk Capital Markets & Advisory served as exclusive financial advisor to AFG for the transaction. 

In 2019, Neon booked £435.4mn in gross written premiums, an increase of £30.3mn on the previous year, with the 2018 year of account marking an 80 percent jump in GWP from £225.7mn.

The Neon acquisition is one of several legacy deals being pursued by Riverstone, with this publication last month revealing that the Luke Tanzer-led firm was active in eight run-off acquisitions with net reserves in excess of $2bn.

Another live process Riverstone is involved in is a back year deal for Apollo Syndicate 1969.

As revealed by The Insurer, Apollo has engaged Guy Carpenter to advise on a potential Lloyd’s legacy deal with reserves of circa £130mn ($169mn).

Apollo is one of a number of Lloyd’s syndicates exploring a legacy solution which would free up back year capital to support front-end underwriting at a time of improving market conditions.

Active legacy deals in Lloyd’s market

Riverstone is also in talks over an Argo portfolio which is being marketed by Willis. The Bermudian-domiciled carrier first brought the long-tail US liabilities portfolio to the market last year. 

This publication understands that the potential back-year deal is for business written by its Lloyd’s business Syndicate 1200. 

As reported earlier this month, Riverstone, along with Bermudian run-off giant Enstar, had made it through to the next round for the Argo Lloyd’s portfolio with reserves of £357mn ($458.5mn).

The process – which is being managed by Willis Towers Watson (WTW) – relates to the 2017 and prior year of account for Syndicate 1200.

This publication understands that Argo has explored a number of structures for the deal, including a loss portfolio transfer (LPT) and a reinsurance-to-close (RITC). 

In June, Riverstone effectively acquired the defunct Skuld Syndicate 1897 via the purchase of its corporate members. The deal – brokered by WTW following a tender process  – saw the transfer of total assets of £95.8mn; gross provisions of £123.87mn and net provisions of £98.4mn at 31 Dec 2019.

The legacy carrier – which operates at Lloyd’s via Syndicate 3500 – has also undertaken a RITC of Scor’s Syndicate 2015 (Channel Syndicate) on it’s 2017 and prior years and a RITC of Mitsui Sumitomo’s defunct Syndicate 3210, with gross and and net technical provisions of £560mn and £419mn respectively.

Riverstone Lloyd’s legacy transactions since 2018...

In 2018, it provided an LPT for stablemate Brit Syndicate 2987 with gross and net provisions of £135.6mn and a separate LPT for an unnamed Lloyd’s syndicate with gross and net provisions of £63.8mn.

Lloyd’s has been the subject of heightened legacy deal activity as a number of retrenching or shutdown syndicates in the post-‘Decile 10’ environment look for full or partial run-off solutions.

The uptick in demand for legacy transactions has also been driven in part by the Covid-19 pandemic, as (re)insurers increasingly look to restructure their portfolios to either put under-performing units into run-off or release solvency capital via back-year transactions. 

The fallout from Covid-19 losses is also expected to spur further activity at One Lime Street as insurers look to free up capital via back-year deals. Earlier this month, S&P warned of more syndicate closures at year-end. 

Supply and demand 

As more syndicates look to gauge the appetite of Lloyd’s legacy counterparties, both seasoned and start-up legacy reinsurers are also raising capital and building out their ranks. 

The Lloyd’s legacy market – traditionally dominated by three acquirers: Enstar, Riverstone and R&Q – has seen a flurry of newer entrants.

Newcomers include Marco, which this publication revealed was set to launch in July with Eur500mn of backing from PE house Oaktree Capital.

The start-up – led former Darag CFO Simon Minshall – also says it has a further Eur250mn in accessible “dry powder equity” ready to be deployed and has its eyes set on a Lloyd’s platform.

Recent investments and capital committed to run-off platforms

Marco is one of several start-ups to enter the legacy space, in recent years including giant AIG spin-off Fortitude Re, Bill O’Farrell’s Arch-sponsored Premia Holdings, Fleming Re and Karl Wall’s Carrick Specialty.

However, Lloyd’s insistence that RITC transactions are retained internally restricts the ability of legacy providers to provide solutions without a Lime Street platform.

Premia’s purchase of Charles Taylor’s run-off Standard Syndicate 1884 and managing agency last year also gave the legacy carrier a Lloyd’s platform, which its newcomer competitors currently lack. 

Of the established legacy acquirers at Lloyd’s, R&Q recently added fire power to its run-off capabilities with a $100mn equity raise backed by 777 Partners and HSCM.