By Chris Munro, Sophie Roberts

March 21 - (The Insurer) - Bermudian startup Mereo is working on developing a diverse business portfolio across 25 segments including participating in the upcoming Japanese renewal, with Brian Duperreault optimistic the reinsurer will have a “pretty good balance” by year end.

• Mereo now fully live after two years in the making

• Looking to develop portfolio across 25 business segments

• Brokers have been “very welcoming”

• Balance sheet and ILS businesses provide cedants with range of solutions

• In discussions about assuming business at April 1

• Specialty fund focused on more “extreme” parts of the portfolio

Talking to The Insurer, Mereo’s chairman said that the industry has been “very welcoming” to the now fully live company as it begins underwriting following its recent launch.

Pure-play reinsurer Mereo has been two years in the making, and in an interview with The Insurer shortly before the launch of a new biography based on Duperreault’s life and career, the industry veteran provided insight into the company’s plans, what attracted him to the business and why it took longer than expected to go live.

The new company has a management arm, Mereo Advisors Limited, in which Duperreault serves as executive chairman, with Lawrence Minicone its CEO and Neil Strong its president.

As previously reported, market sources told this publication that ILS platform Mereo ILS Opportunities Limited, which is led by Strong as CEO, went live in time to participate in the January 1, 2025, reinsurance renewals after completing a successful initial fundraising.

And in early February, it was announced that balance sheet business Mereo Insurance Ltd had launched with equity backing from Susquehanna’s private equity arm and The Andover Companies, along with a preferred equity investment from Ares Management Alternative Credit Funds.

Mereo Insurance is an AM Best A-minus rated balance sheet business whose leadership team includes co-founder and CEO David Croom-Johnson, supported by co-founder and deputy CUO Richard Holden.

Duperreault also serves as executive chairman of Mereo Insurance.

Sources close to the situation previously told The Insurer the startup had launched with over $650 million in capital, with ambitions to grow that to $1 billion.

Mereo has appetite to underwrite a broad spectrum of property, casualty and specialty reinsurance business on both a proportional and non-proportional basis.

DIVERSIFIED CELLS

Talking to The Insurer, former Ace, Marsh McLennan and Hamilton chief Duperreault said Mereo is looking to write business across 25 “diversified cells of businesses” that are uncorrelated with each other.

He explained that the rationale behind the approach is that the company will have “a fairly balanced loss ratio over time, regardless of the cycle, regardless of whether prices are up in a particular area".

“It balances out for a variety of reasons,” he said. Strong underwriting and risk selection means the portfolio will be “pretty steady, and the loss ratio is actually quite good".

A focus on the expense ratio will also help differentiate the company, said Duperreault.

“A lot of times a differentiating factor between the good and the bad is the expenses, not the loss ratio. It’s not always the case, but quite a bit,” he said.

“We're pretty confident about the relative up and down of the loss ratio, the spread of it. But we have an expense advantage. The way we're structured, our expenses are probably about half those of our competitors on the (general operating expense) side,” the executive stated.

“That combination of a steady loss ratio, which is really usually pretty good, and this expense component gives us a very good chance of making steady underwriting profit.”

Duperreault said Mereo’s strategy means the company must be disciplined about its spread and the extent it can grow in certain segments.

“But we trade that for profit,” said Duperreault.

“And I'd rather trade growth for profit any day in a week in our business. We'll grow over time, because there's plenty of business out there.”

Of the 25 business lines that Mereo is targeting, Duperreault said the company is “trying to fill them all out right now”.

“We're a month into it so obviously it’s a work in progress. But I’m confident that by the end of the year we’ll have a pretty good balance.”

Duperreault detailed the differing appetite for risk between Mereo’s rated balance sheet business and its ILS operations.

The executive said the “big bang stuff” such as property catastrophe or certain marine and aviation risks may be better suited to Mereo’s ILS platform.

“There really is no conflict, because we try to dampen that out in our portfolio. In the case of an ILS business, if you just take a rate online, the ILS might be up in the 20s, and in (the balance sheet business it’s) probably in the 10s.

“So there's no conflict, really, when you get them into it. It's different layers of exposure, so they're more compatible than conflict.”

Prior to Mereo’s launch, this publication had reported the company would comprise a balance sheet risk-bearing business and an ILS operation. Duperreault revealed during the Bermuda Risk Summit in March that the nascent business would also have a specialty fund.

According to Duperreault, that fund remains a work in progress, but he said the expectation is it will focus on the more “extreme” aspects of the specialty market.

“The catastrophe area of the specialty business… where the excess is and where the risk itself runs out of capital to cover it, that’s where we would come in,” he explained.

MARKET RECEPTION

Duperreault said the market reception to Mereo has been “very good”.

“The brokers are very welcoming…They're working very hard to help us,” he said.

“Helping us get established so that we truly are an alternative is really in their best interest, and I think the cedants are looking for alternatives too. Over the last decade or so, the number of reinsurance players has reduced.

“We as an industry have successfully squeezed out some of the marginal players, but in the process, we’ve limited options with the cedants.”

Duperreault said Mereo will look to source business from around the world as it looks to build out a diversified portfolio. The company is currently in discussions to assume business at the upcoming April 1 renewal.

“We’ll see how we do, (but) I’m optimistic that the Japanese market will find some room for us,” Duperreault said.

Mereo’s structure, which Duperreault has previously described as “interesting”, provides a range of options to cedants, the executive said.

“(The structure) gives great advantages to those who seek out a solution to the risk problem, because it gives us more flexibility to find the right home for the risk. So there's a lot of benefits to it.”

Mereo has been set up in Duperreault’s birthplace of Bermuda, and currently its focus on expense controls mean the company is limited in its ability to branch out into other parts of the world.

However, looking ahead Duperreault said he could see Mereo having a Lloyd’s vehicle.

“Because of the flexibility that clearly is a potential, but we have no actual plans,” he said.

TWO YEARS IN THE MAKING

Duperreault’s 50-year career in the (re)insurance industry has included leading major industry players such as Ace, Marsh McLennan, Hamilton and AIG. He stepped down as executive chairman of AIG in late 2021.

Following his departure from AIG, Duperreault said he “still wanted to continue to do some things in the industry”.

“I felt I still had the energy and the desire. And I really love (the industry). It draws me to it… There were a lot of things I knew I wasn't going to do, including running a company. I didn't want to work for anybody,” he said.

A partnership agreement, one in which he did not have operational responsibility, did appeal, and so when he was approached by Strong and Minicone about the opportunity that would develop into Mereo, his interest was piqued.

“The first thing I'd say is I like them, and that was one of my standards. I didn't want to work with anybody I didn't like,” Duperreault said.

“I said I liked the idea, and I liked the structure, but I’m not sure we can get it done. I wasn’t thinking about the capital side of it. I thought for sure we’d get the capital right away.

“I just thought would we be able to be operational because the structure is a diversified portfolio of reinsurance business…I wasn’t sure that we would be able to have a diversified portfolio of business in any reasonable amount of time.

“As it turned out, I was wrong about that, and I was wrong about how easy it was going to be to get the capital,” Duperreault explained.

With the company now live, Duperreault said Mereo has “a very nice panel of investors”.

“We have a great CEO. I've got some great partners. We’ve got a great strategy, and we're now actually in business…and it's proving to be what we thought it would be: that we are a company that has the ability to be a permanent fixture in the reinsurance world.”

The interview took place shortly before the publication of "Faith & Purpose: The Life & Vision of Insurance Icon Brian Duperreault", a biography chronicling the life and career of Mereo’s executive chairman.

Written by Wendy Davis Johnson, the biography provides insight into Duperreault’s personal and professional life gathered from interviews and research conducted over the last four years.

In an accompanying interview with sister title The Insurer TV, Duperreault reflects on his industry career and discusses the biography’s launch.