Capsicum Re to rebrand as Gallagher Re following acquisition

Capsicum Re, the London-headquartered firm which has grown to become the fifth largest reinsurance broker since its launch in 2013, has today announced its imminent rebrand to Gallagher Re.

The move – which will take effect from 1 October – follows Gallagher consolidating its ownership of the employee-owned firm after buying out the holdings of former Benfield CEO Grahame “Chily” Chilton and the management and staff who grew Capsicum Re with the start-up backing of the global broking group earlier this year.

Capsicum Re CEO Rupert Swallow is celebrating the broker’s partnership and integration with the Pat Gallagher-led US powerhouse which initially provided the fledgling reinsurance business with back-office support and infrastructure – in exchange for a 33 percent stake and a buy-out option. The latter was exercised in Q4 2019 and completed earlier this year.

“Right from the very beginning, Gallagher’s incubation of and investment in Capsicum Re has enabled us to build out this incredibly talented team where we combine top transactional expertise and entrepreneurial energy with market-leading analytics,” Swallow explained.

He added: “Now is the right time to fully align on brand, draw on the power of Gallagher and take our expertise, capabilities and solutions to every corner of the global Gallagher family and network, and beyond”.

Speaking to The Insurer, Swallow – who co-founded Capsicum Re before becoming CEO in 2015 when Chilton took over the management of Gallagher’s UK and London market operations – said building out the reinsurance business’ US operations is a key focal point in the next stage of the subsidiary’s evolution.

“The US is the industry’s largest reinsurance market accounting for 60 percent of premium. It makes absolute sense for us to build out our presence as Gallagher Re in the world’s largest reinsurance market and that is now a key imperative for us,” he explained.

Before the sale to Gallagher, Capsicum Re had grown to around 160 staff using the private equity structure of limited liability partnerships. It places around $5.4bn in annual GWPs, has estimated turnover in excess of $100mn and has established overseas offices in the US and key international markets such as Latin America. Stand-out business units include UK motor/casualty – under the stewardship of co-founder Raja Balasuriya – and cyber reinsurance, led by Ian Newman.

The brand name change is the latest step in a series of integration moves this year. These included a new Executive Committee unveiled in the summer with Balasuriya as chairman and divisional heads Matt FitzGerald and Alistair Lockhart-Smith also joining the new-look leadership team. These, and other key Capsicum Re staff, also signed up to new, long-term compensation structures as part of the Gallagher sale process.

Balasuriya succeeded Chilton in the chairman’s role, with the latter taking the role of chairman of Gallagher’s global broking business when Capsicum Re became wholly owned by Gallagher. Earlier this year, The Insurer revealed he was behind a new London market reinsurance MGA, Adeptive Holdings LLP. 

In addition to its London headquarters, Gallagher Re has overseas offices in Bermuda, Rio de Janeiro, Santiago, Miami and New York, with the latter used as a base for cyber reinsurance.

But Swallow says the US footprint will now expand significantly under the Gallagher Re brand as it focuses on attracting producers and teams from rivals.

“Capsicum Re built its initial success on creating a culture that attracts entrepreneurial people who want to build a business. Although not adverse to acquisitions, we see hiring the right people as integral to our growth strategy in both the US and internationally,” Swallow told this publication.

His comments come amidst twelve months of revolving doors among high-revenue reinsurance producers as ambitious mid-tier rivals such as TigerRisk, Lockton Re, BMS, Beach and Hyperion seek to lure talent disaffected by the mega-consolidation from Aon and MMC, with the latter buying the fourth largest reinsurance broker JLT Re as part of its £4.3bn acquisition of its UK parent.

Most observers expect this trend will continue with Aon’s acquisition of WTW and its reinsurance arm, Willis Re, slated to close H1 2021. If completed, it will be the largest transaction in global broking history.

The rebrand to Gallagher Re comes a decade after the US broking heavyweight shuttered its initial Gallagher Re, a start-up based around a team of former Benfield executives and a misjudged focus on building out analytics first rather than business wins, which was central to Capsicum Re’s early successes.

In contrast, Pat Gallagher described Capsicum Re as the “best start-up I’ve seen in my 45-year career”.

He added: “We didn’t hesitate to back the vision and business plan of the founding Capsicum Re team because we knew it was a blueprint for how to create a market-leading reinsurance broker. Their reputation and track record gave us total confidence in their ability to succeed – a confidence that has been repaid many times over. What the team behind Gallagher’s reinsurance business has achieved is almost unbelievable. And now, trading as Gallagher Re, they’re just getting started.”

Simon Matson, CEO of Gallagher’s broking and underwriting operations in the UK, said Capsicum Re’s achievements in its six years of trading had been “remarkable”.

“With the vision of ultimately becoming a core part of Gallagher’s proposition, that team built a top five global reinsurance broker from the ground up and a blank sheet of paper,” Matson said.

“And today’s announcement kick-starts the next iteration as we look to realise the magnitude of untapped opportunity that lies ahead for our exceptional reinsurance team that will be Gallagher in name as well as in spirit, with one identity, one plan and one huge shared ambition, Matson concluded.”

Gallagher did not disclose the terms of the acquisition. Earlier this year, The Insurer calculated the overall enterprise value could have exceeded $200mn based on the typically-high margins which reinsurance intermediaries enjoy and a discounted Ebitda multiple of ~10x.

The Insurer comment:

A pun on Chilton’s nickname “Chily”, Capsicum Re expanded rapidly from a standing start to an estimated 2019 turnover of $100mn+. In part at least, this impressive growth was fuelled by the incentive-based limited partnership model devised by its founders.

Now it is wholly-owned by a US/ multinational insurance intermediary heavyweight. The challenge, therefore, is to retain the start-up culture despite the integration and changing circumstances which means its employees are no longer part-owner managers. This will be key to Gallagher Re’s continued growth.

But the integration – symbolised above all else by the imminent name change announced today – also allows the reinsurance intermediary to have greater access to Gallagher’s vast pipeline of US/ international business while the flux among the mega-consolidators should also throw up new opportunities for hiring talent. Gallagher’s reinsurance business currently has 160 producers and staff. It will be interesting to see what that total looks like in a year’s time…

Look out for The Insurer’s annual Top Ten Reinsurance Broker survey, published on 22 September