Pioneering deal creates first pan-Asian reinsurance company

Asia's first specialty reinsurance company launches with $620 million of capital raised from investors, led by 3i and Khazanah.
Asia Capital Holdings, the holding company for Asia Capital Reinsurance Group (ACR), closed a $620 million capital raising on Friday, the largest ever capital raising in the region by a start-up company. The deal also marks a significant development for the reinsurance industry in Asia.

ACR is a Singapore-based reinsurance company which will focus on specialty lines of reinsurance including aviation, marine, infrastructure and engineering projects in Asia.

The investor consortium is led by 3i and Khazanah (the investment holding arm of the government of Malaysia), who each invested $200 million. Other investors include affiliated investment funds of Och Ziff Capital Management Group, Morgan Stanley Private Equity Asia, Credit Suisse Private Equity Asia and the Luxembourg Sicav "Worldwide Sicav". Khazanah will also form a local reinsurance joint venture with ACR in which it will hold 70% stake to capture a portion of reinsurance premiums currently written outside of Malaysia.

3i Asia co-head and Singapore managing director Mark Thornton terms the private placement ôa landmark transaction in the regionö.

ACR is expected to benefit significantly from an early-mover advantage. Currently, the industry in Asia is dominated by regional players catering to their own geography. ACR plans to cover Greater China, Southeast Asia, Korea, Australia and emerging markets such as India.

It claims to be the first truly pan-Asian company in this space, although Alba, a Lloyd's Asia franchise based in Singapore, also provides reinsurance in multiple markets, as do plenty of global insurance names. Much reinsurance in the region is conducted by big domestic firms that don't do cross-border business.

Sources close to the deal say ACR is acting upon the opportunity to benefit from driving a structural change in the industry in Asia, rather than the cyclical trend which has driven some such transactions in other geographies.

ACR founder and CEO, John Tan, who has spent 30 years in the insurance and reinsurance industry mostly in Asia, says: ôIt is most fortunate that ACR is able to operate at a time when many people, within and outside the industry in Asia, are calling for the faster development of the Asian reinsurance landscape to cope with the significant growth in quality assets and insurance needs.ö

ACR, a start-up company, managed to achieve financial strength and issuer credit ratings of A- from rating agency AM Best, which specialises in insurance ratings. AM Best says the ratings ôreflect ACR's solid capitalisation, experienced management-team and sound business planö.

AM Best does however note concerns regarding ACR's existing infrastructure and current staffing. The agency says it expects ACR will face increased competition from the established reinsurance companies in Asia. Sources close to the deal agree that ACR is venturing into an attractive area where competition is likely to grow but suggest that the barriers to entry are high enough that ACR is well placed to get a head start. Further, ACR is expected to reap the benefits of both business and geographical diversification.

Morgan Stanley acted as exclusive financial advisor and sole placement agent to ACR.
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