We have been advised of one additional disclosure and two further updated syndicate forecasts since our Auction Bulletin was sent on Friday evening.

Auction Disclosure

Canopius Syndicate 4444

Following the merger of Syndicate 958 and Syndicate 4444 for the 2016 underwriting year, Syndicate 4444 became an unaligned syndicate with Flectat Limited, a subsidiary of Sompo Canopius AG and an associate of Canopius Managing Agents Limited, having a right to participate on the 2016 and subsequent underwriting years with not less than 75% of the syndicate’s allocated capacity.

As a result of paying consideration to acquire additional capacity in the 2017 auctions, Flectat Limited is now required under the Mandatory Offer Byelaw to issue an invitation to acquire all of the unaligned prospective participations of Syndicate 4444 for the 2019 and each subsequent underwriting year. This invitation will be at a price of not less than 14.05p per £1 of capacity, relative to the total allocated capacity for the 2018 underwriting year.

It has not been determined if Flectat Limited will be seeking consent to waive the requirement to make this mandatory offer.

Argenta Comment: Canopius has owned more than 75% of the syndicate since Syndicate 4444 was merged with syndicate 958 for the 2016 account. As Flectat (the aligned capital provider) had never acquired capacity on Syndicate 4444 through auction activity it applied for (and was granted) a postponement on the obligation to make a mandatory offer at the time of the syndicate merger.

Flectat acquired capacity on Syndicate 4444 for the first time in Auction One this year. It acquired more in Auction Two. It is therefore required to make an offer to the remaining non-aligned members at some point in the next twelve months at no less than the highest price that it has paid over the past year. The highest price paid is 14.05p.  We are surprised that this disclosure was not made until the advent of the third auction, bearing in mind (as noted in our Auction One Report) Flectat had acquired capacity in the first Auction.

In September it was announced that Canopius had reached terms to be acquired by a consortium led by Centrebridge, a New York based private equity business. The transaction is expected to complete in the first quarter of 2018. Flectat will be part of the business that is acquired. We note that the disclosure states that no decision on whether to seek a waiver of the requirements of the mandatory offer has been taken. At this stage, we cannot see any reason why we would want to agree to such a waiver, which would in any event necessitate a ballot of the member concerned, with the support of 75% of the voting, unaligned capacity required. We will advise clients further during 2018 if either a mandatory offer or an application to waive the obligation is made.

This disclosure is silent on Flectat’s intentions for this auction and we believe that Flectat may continue to seek to buy capacity in the third auction at a price that may be lower than the price at which the expected Mandatory Offer will be made.

Updated Syndicate Forecasts

Apollo Syndicate 1969

 

 

Capacity
£000s

Forecast range as at 30 September 2017

Previous Forecast
Range

Change at
Midpoint

2015

159,966

1.5% to 6.5%

1.5% to 6.5%

unchanged

2016

179,509

-20.0% to -5.0%

-10.0% to 0.0%

7.5 points worse

R&Q Syndicate 1991

 

 

Capacity
£000s

Forecast range as at 30 September 2017

Previous Forecast
Range

Change at
Midpoint

2015

146,178

-5.8% to 4.2%

-5.8% to 4.2%

unchanged

2016

129,740

-6.3% to 3.7%

-5.2% to 4.8%

1.2 points worse