Ready to go platinum

St Paul is pressing ahead with the spin-off of its reinsurance arm into a new Bermudian company, despite the scepticism of analysts. Mairi Mallon reports.

At the Bermuda Angle analysts' conference last month, some analysts
were joking about a company they have nicknamed 'Lead Re' - saying it was
too heavy to get off the ground. The company is known to the rest of the
world as Bermuda start-up Platinum Re, which has failed time and time
again to float on the New York Stock Exchange.


Analysts were doubtful about who would buy the stock. "I don't know who is
going to buy it, but it certainly won't be me," said one senior
analyst.


Others were sceptical that the company will be able to recruit enough
talent into Bermuda, where hundreds of jobs have already been created by
the other insurance start-ups launched since September last year (see
p20).


Nevertheless, as Reinsurance went to press, it looked increasingly certain
that US (re)insurer St Paul would finally float Platinum Underwriters
Holdings.


Platinum filed a revised S-1 form with the US Securities and Exchange
Commission on 15 October and has begun its investor 'roadshow' prior to
listing on the New York Stock Exchange in a bid to raise the capital it
needs to start its operations. Joint book-runners are Goldman Sachs,
Merrill Lynch, Salomon Smith Barney, Banc of America Securities, Credit
Suisse First Boston and JP Morgan.


St Paul said the date of the completion of the initial public offering
(IPO) would be "driven by market conditions and regulatory approvals".


Flotation seems likely


St Paul announced back in April that it was to place its reinsurance
business in a new Bermudian reinsurer. St Paul said the spin-off of the
world's 16th largest reinsurance operation was to free up capital for its
core businesses. The "imminent" IPO has been touted almost every month
since then. St Paul repeatedly blamed "poor market conditions" for the
delay, but more than six months on it looks as though it will finally
happen.


RenaissanceRe, the respected Bermudian reinsurer, has put its weight
behind the flotation, saying it will take nearly 10% of Platinum's
shares.


Renaissance has agreed to buy 3.96 million of the company's common shares
in a private placement at a price per share equal to the IPO price, less
underwriting discount. Renaissance also receives a 10-year option to
purchase up to 2.5 million common shares of Platinum at 120% of the IPO
price.


Another auspicious sign for the IPO is that Montpelier Re - another
Bermuda start-up - floated successfully last month, bringing the longest
IPO drought on record at the New York Stock Exchange to an end.


Montpelier, backed by the White Mountains group, raised $201m - good news
for other hopeful IPO candidates.


Platinum has not set up offices in Bermuda yet and most of the preliminary
business is being carried out in New York from the St Paul Re offices.


While the official line is that the company is not yet open for business,
Jerry Fadden, chief executive of St Paul Re, has moved to Bermuda with his
family. The 44-year-old succeeded James Duffy in March with an impressive
curriculum vitae and extensive experience in both insurance and
reinsurance and in finance and business strategy.


He joined St Paul from UBS PaineWebber, where he was executive
vice-president and director of strategic development in the office of the
chairman.


He was chief financial officer of the PaineWebber Group from 1999 to 2001,
one of the founders of Equus Re, the chief financial officer at Nac Re and
treasurer of Travelers Group.


In April it was announced that he would head up the new Platinum operation
in Bermuda alongside industry veteran Steven Newman, who will become
chairman of the new company. Mr Newman was chairman, president and chief
executive of Underwriters Re Group prior to its acquisition in May 2000 by
Swiss Re.


Capital close to $1bn


Platinum is registered in Bermuda as a Class 4 insurance company - the
classification applied to large property catastrophe excess liability
carriers with a statutory capital of not less than $1bn.


Platinum will price its IPO of 30 million shares at $22-23 a share and the
flotation could raise $794.6m if the over-allotment option is
exercised.


St Paul will make a cash contribution of $121-126m, plus certain tangible
and intangible assets, and will receive 6 million shares. Adding in the
investment from Renaissance, that would take Platinum's initial capital to
between $949m and $987m.


St Paul will retain a 15% stake in the new company, assuming the
over-allotment option is not exercised.


Platinum plans to underwrite global property and marine, casualty and
finite risk reinsurance through operating subsidiaries in Bermuda, the US
and the UK. It also expects to take on around 150 former St Paul Re
employees.


It will acquire the right to renew substantially all of St Paul Re's
reinsurance business, although St Paul will retain all pre-2002
liabilities and any liabilities relating to August's European floods.
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