Watford Re’s IPO on Nasdaq Discounted to Book Value

Watford Holdings Ltd., the parent company of Arch Capital and Highbridge Principal Strategies, backed by investment-oriented or total return reinsurance firm Watford Re, has completed its initial public offering (IPO) on the Nasdaq.

Watford Re is a valuable part of Bermuda insurance and reinsurance firm Arch Capital’s strategy to embrace third-party capital, bringing efficiency and additional revenue to the firm’s overall operations.

Backed by third-party, largely institutional investors, Watford Re follows a total return or hedge fund strategy.

It underwrites medium and long-term reinsurance business, largely with the help of the Arch Capital platform, while asset manager Highbridge Principal Strategies invests the long-term assets of reinsurers in strategies aimed at earn a higher return than a typical reinsurer would normally. to look for.

Up to 3.6 million shares of existing investors in Watford Holdings were for sale during the IPO, a process that was successful for the company as its common stock began trading on the Nasdaq yesterday. Global Select Market under the symbol “WTRE”.

However, Watford Re had a book value of around $ 39.22 at the end of 2018, despite losing for the year of almost $ 55 million. But after the IPO, its shares started trading on the Nasdaq at just $ 25.26, a discount of around 36% from book value.

By the end of the day, shares had risen nearly 7% to close at $ 27 by the end of the day yesterday.

Listing was probably the primary concern, rather than price, as access to capital markets and the ability to cash out for early stage investors were perhaps the primary reasons to seek listing first. place.

Watford CEO John Rathgeber said: “This is an important step in the evolution of Watford.

“Listing the Company on Nasdaq achieves the objective of providing a liquidity mechanism to our existing shareholders; this will allow us to diversify our investor base; and it will give us access to public capital markets when we need to finance our growth.

Watford Re can now leverage its access to capital markets through secondary offerings to fund its growth, possibly when it sees underwriting market conditions as conducive to seeking expansion.

Arch Re was listed as the owner of 14.7% of Watford Re’s shares in its prospectus for the IPO. It is not clear at this time whether the reinsurance company took the opportunity to sell any of its shares in the total return reinsurer, but it seems unlikely given the strategic nature of the underwriting relationship between the pair is destined to continue.

The total return or investment oriented reinsurer strategy has worked well so far for Watford Re and Arch, with the size of the vehicle and the risk portfolio increasing each quarter to become a significant contributor to Arch’s earnings, when at least the investment and underwriting performance aligns.

Watford Re now has over $ 3.5 billion in total assets and nearly $ 3 billion investable, meaning that when Highbridge’s investment strategy is successful it can deliver high returns on investment. When the subscription is also efficient, it can offer its new investors a very attractive total return.

The goal of total return reinsurers was to outperform the wider reinsurance market, largely through return on investment, while underwriting aims for lower profit, but is designed to accumulate long-term assets than the Alternative investment manager supports vehicle (Highbridge) research.

Now successfully IPO, Watford Re will be looking for a few good quarters of results to demonstrate the value of its strategy, before likely trying to strengthen its capital base, which ultimately allows it to do more.

As a result, the benefits for Arch Capital Group will continue to flow.


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