By Chris Munro

Feb 10 - (The Insurer) - Brian Duperreault-helmed start-up Mereo Insurance Ltd has officially launched with equity backing from Susquehanna’s private equity arm and The Andover Companies and a preferred equity investment from Ares Management Alternative Credit funds.

The Bermuda-based (re)insurer, which has been in the works for almost two years, has also formally been assigned a financial strength rating $(FSR)$ of A- and a long-term issuer credit rating of a- by AM Best. The outlook on the ratings is stable.

Mereo received a preliminary A- financial strength assessment in February last year.

“The current healthy market in reinsurance presents an unprecedented opportunity for investors,” Duperreault, Mereo’s co-founder and chairman, said in the launch statement.

“With attractive risk-adjusted rate levels across the P&C market, as well as a need for more capacity, Mereo is uniquely positioned to deliver solutions that meet the growing demand for reinsurance while providing attractive returns to our investors,” Duperreault added.

In its launch announcement, Mereo confirmed a host of senior industry names who will work alongside former senior AIG, Marsh McLennan and Ace executive Duperreault.

As previously reported, London market veteran David Croom-Johnson, the former CEO of Aegis London, is co-founder and CEO of Mereo Insurance Limited.

He is supported by former Fidelis executive Richard Holden, co-founder and deputy CUO, who Mereo said brings strong experience in the Bermuda reinsurance market.

In the launch statement, Croom-Johnson said Mereo is coming to market at “such an exciting and dynamic moment”.

“The current market dynamics will allow us to produce a diversified and balanced portfolio of specialist reinsurance businesses across a broad spectrum of property, casualty and specialty classes to meet our investors’ needs,” he added.

In the launch announcement, Mereo has described itself as “an innovative (re)insurance platform focused on transforming the global property, casualty, and specialty markets”.

It highlighted that the reinsurance market “is currently pricing at attractive risk-adjusted rate adequacy levels and has created a unique investment opportunity, with reinsurance rates rising across many sectors”.

“Mereo is positioned to take full advantage of this environment by combining traditional reinsurance with capital markets solutions.

“Mereo offers an innovative business model designed to address the growing demand for risk transfer,” the start-up said.

AM Best confirms A- FSR

AM Best said Mereo’s newly assigned FSR of A- reflects the start-up’s “very strong” balance sheet strength, along with adequate operating performance, limited business profile and appropriate enterprise risk management $(ERM.AU)$.

“The ratings also reflect AM Best’s expectation that, based on Mereo’s business plan, the company will maintain a balance sheet strength assessment of very strong supported by its projected risk-adjusted capitalization being at the strongest level throughout the five-year initial forecast period, as measured by Best’s Capital Adequacy Ratio (BCAR),” the ratings agency said.

Precise details of Mereo’s initial capitalization are unknown, but this publication has previously reported that the companyhas secured ~$650mn in capital, and has ambitions of increasing that to around $1bn by the end of this year.

AM Best said Mereo’s initial capitalization in 2024 and retained earnings through the forecast period are expected to support the nascent (re)insurer’s premium growth.

That capitalization “is expected to be rapid in its early years, based on projections”, AM Best said.

“The company’s capital is anticipated to be managed through the use of reinsurance and potentially third-party capital.

Conservative investment portfolio

“Investment risk is projected to be low given its conservative investment portfolio, which will remain matched closely to the evolution of the liability profile, supporting stability in future balance sheet metrics,” the agency added.

Mereo’s adequate operating performance assessment and its limited business profile assessment are based on the business plan that the (re)insurer presented to AM Best.

“The plan includes rapid premium growth in its initial years and improving operating profitability that supports an adequate operating performance assessment,” the agency said.

Mereo’s portfolio will be composed of casualty and specialty business diversified by subcategories, geographies, and attachment points, the plan said.

AM Best noted Mereo’s senior management team is composed of individuals that it said have “extensive experience and strong track records in the industry”.

“The limited business profile assessment, nevertheless, considers the execution risk faced by any start-up operation, in recognition of the customary challenges associated with gaining market acceptance in the casualty and specialty space, while remaining profitable.

“An ERM structure has been established initially and is expected to develop as the product risks complexity of the business evolves,” AM Best added.

In the launch announcement, Ares Management partner Scott Rosen said his company was pleased to work with an experienced team in a new venture like Mereo.

“Through our flexible capital solution, we look forward to supporting their growth and strategic ambitions as a trusted reinsurance counterparty,” Rosen said.

The Andover Companies’ president and CEO Charles DiGrande said his firm is “proud to partner with the talented Mereo team who have a strong track record of success”.

“This investment is an excellent addition to the Andover portfolio because of the diversified nature of Mereo’s writings and the cultural alignment of our firms,” he added.

Mereo revealed it had worked with several advisors in getting the business launched, including Guy Carpenter Capital & Advisory, Willkie Farr & Gallagher LLP, Lockton Re Capital Markets, LLC, BMS Group Ratings Advisory, Kinmont Advisory, Price Forbes Re, and Appleby Bermuda.

Ares was advised by Skadden, Arps, Slate, Meagher & Flom.

This publication reported last week that Mereo’s rated carrier platform was slated to launch on 1 April.

Mereo Insurance was approved in December by the Bermuda Monetary Authority $(BMA)$ as a Class 3B insurer.

Launch of the balance sheet platform comes after the start-up’s Neil Strong-led ILS fund – Mereo ILS Opportunities Limited – is understood to have already gone live and was active at the 1 January reinsurance renewals following a successful initial fundraising.