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Stephen Catlin has teamed with Paul Brand to launch Convex Group, the “largest ever” insurance startup with $1.8 billion in initial capital.
  • Kate Smith and Robert O’Connor
  • June 2019
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Stephen Catlin

Stephen Catlin

Stephen Catlin may have officially “retired” from XL Group in December 2017, but he had no plans to stop working.

“I never really retired,” he said. “I had no intention of retiring.”

Catlin made that point crystal clear on April 30, when he launched what's being hailed as the largest ever insurance startup, Bermuda-based Convex Group Ltd., with $1.8 billion in initial capital.

Convex, an international specialty insurance and reinsurance company, will focus on complex specialty risks across a diversified range of business lines in London and Bermuda.

“I'm excited for the opportunity to do things differently and better,” Catlin said. “We're not going to build a global footprint. We're just going to do London and Bermuda. We might have a presence in the U.S. I don't know yet, but don't need to straightaway.”

AM Best assigned a Financial Strength Rating of A- (Excellent) to Convex Re Ltd. (Bermuda) and Convex Group UK Ltd. The rating agency also gave the entities a Long-Term Issuer Credit Rating of “a-.”

Convex UK will be the group's London-based specialty insurer and will be the principal contributor of premium income. Convex Re is the group's Bermuda-based reinsurer. In addition to writing third-party reinsurance, it will provide reinsurance protection to Convex UK.

In issuing its ratings, AM Best said Convex Group has a senior management and underwriting team in place that has extensive experience in its targeted classes of business, which, in AM Best's view, “increases the likelihood of market acceptance and successful execution of the group's business plan.”

Catlin teamed with Paul Brand, a former senior executive at Catlin Insurance, on the venture. Catlin will serve as chairman and chief executive officer of Convex, while Brand will be deputy CEO.

Convex is funded by capital from its own management, as well as Toronto-based private equity firm Onex Partners, Montreal-based PSP Investments, and a consortium of other investors.

Catlin said this is the first close, and he will continue raising capital.

“The banks say to me, 'Once you're up and running; it will be easy to get people to join the party. People don't like joining things that haven't started,'” Catlin said. “We'll find out whether or not that is true. But $1.8 billion is still the largest ever startup in the insurance sector.”

Convex has drawn attention not only because of Catlin—an Insurance Hall of Famer and founder of Catlin Group Ltd.—but also for its massive funding. While Bermuda has seen waves of startups over the decades, no company from its venerable classes of 2001 or 2005 launched with as much capital as Convex.

Axis Capital Holdings, formed in the wake of 9/11, comes closest with initial capitalization of $1.7 billion. Harbor Point (2005) and Allied World (2001) each started with $1.5 billion, and Arch Capital (2001) began with $1.4 billion.

Catlin said Convex benefits from being unencumbered by legacy systems, and the company intends to stay lean through outsourcing.

“We're going to do a horizontal outsource. Anything that is back office and doesn't require human intervention will be outsourced. That will save us about 3% on expenses,” Catlin said. “And we have the opportunity, because we don't have the legacy, to think through how we use technology in terms of the actual art of underwriting, using AI and big data.

“We will still do our own claims adjustment; we'd never subcontract that. But the process post claim being adjusted will be outsourced.”

Convex is the second insurance company founded by Catlin. In 1984, he started Catlin Group Ltd., which he built into the largest Lloyd's insurer. XL Group acquired Catlin Group for $4.1 billion in January 2015, leading to the creation of XL Catlin. Catlin served as the executive deputy chairman of XL Group.

While Catlin officially retired from XL in December 2017, he said he never planned to stand still.

“I'm not the sort who could sit on a beach all day,” he said. “I'd go mad.”

He didn't leave XL with the intention of starting Convex, though. That plan developed over the course of 2018. The notion of starting a venture with Brand, however, goes back even further.

Catlin and Brand had worked together for more than three decades. And when the former colleagues got together for a beer two and half years ago, they tossed about the idea of doing so once again.

“It was almost a de-facto statement that went along the lines of: Wouldn't it be fun to work together again?” Catlin recalled. “There was no more or less commitment than that at the time.

“We worked together for 32 years. We're very different in personality. We have different skill sets. And it's proven to be a very successful partnership between the two of us. There's complete trust between the two of us, which in this day and age is not that common. So it was almost inevitable that would end up doing something together.”

Last March, they got together again, and this time the timing was right. A few months earlier, Catlin had bumped into Stuart Britton, an investment banker who had been an adviser on the XL-Catlin deal, at a Christmas party. Britton, Catlin said, suggested he start a new venture.

Catlin wasn't interested. That is, until a Sunday afternoon call in early March from Mike McGavick changed his mind. McGavick, who was the CEO of XL Group, rang to tell Catlin the company was being acquired by Axa.

For Catlin, that changed everything.

“After the call, my wife said, 'There seems to be a bounce in the air. Stephen, what's going on?' I said, 'I just realized I've been freed,'” Catlin said. “I could never have competed against XL Catlin. It's not within me. But now that it was bought by Axa, I was free.”

Two days after McGavick's call, Lloyd's released its losses, Catlin said, with just about every product line losing money. Later in the week, Amlin announced £500 million (US$652 million) in losses. “The timing of all those things made me think maybe there is an opportunity, and maybe the timing could be right,” Catlin said. “So Paul Brand and I got together and started talking again.”

By May, Brand and Catlin had a business plan, and by June Catlin was seeking investors. But he only wanted partners who would commit their money for 10 years, not the typical five.

By September, they found one such partner in Onex, which agreed to invest $750 million.

Catlin and Brand had hoped to launch Convex on April 1, but couldn't make that deadline.

“There were too many details—minutia-type details—surrounding the regulators,” Catlin said. “We actually got the PRA (Prudential Regulatory Authority) to give us authorization in four and a half months, which for them is breakneck speed. I don't think they've done one in less than 12 months in the last 10 years. There's a lot of background work that had to be done to get these through.”

While Catlin may be the marquee name on this venture, Brand is as much in control of the business.

“This is definitely an equal partnership between the two of us,” Catlin said. “I'm not going to be running the show forever and a day, and a lot of the running of the show is being done by Paul anyway.”

AM Best said it expects Convex to face strong competition from well-established peers in its target markets and be highly reliant on brokers to access business.

When entering a competitive market, as Convex is, it's important to focus on a few particular areas, Thomas Buberl, CEO of Axa Group, said.

“If you find the right niche, there's always space,” Buberl said.

Eamonn Flanagan, an adviser at Shore Capital in Liverpool, England, said there are no doubts about the strength of Catlin's background.

“He has and he will continue to attract a lot of interest because of that track record,” Flanagan said. “And he obviously feels there is room for another carrier.”

—Kate Smith and Robert O'Connor

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