Watson secures JC Flowers backing in bid for StarStone’s Lloyd’s syndicate

Richard Watson’s start-up vehicle has secured cornerstone backing from private equity (PE) house JC Flowers and is in advanced talks to acquire the shuttered StarStone Lloyd’s operation from Enstar, Insurance Insider can reveal.

Watson has roughly $300mn of backing from lead investor JC Flowers, which will allow the start-up to recapitalise the syndicate for 2021, according to sources. Further fundraising efforts are believed to be ongoing, with Evercore advising.

StarStone’s international operations were shuttered by Enstar after it sealed a $610mn StarStone US recapitalisation deal with former American Financial Group CFO Jeff Consolino, incoming chairman Ed Noonan and a consortium of PE firms including SkyKnight Capital, Dragoneer Investment Group and Aquiline Capital Partners.

Enstar previously said it was evaluating additional strategic options for StarStone’s international operations other than run-off.

This publication revealed earlier this month that Watson was the frontrunner for the Lloyd’s assets, although a deal was yet to be agreed, and there was no guarantee it would go forward.

The StarStone move is believed to be a signal that the former Hiscox CUO is likely to look for a launch at Lloyd’s at 1 January, with a Bermuda platform potentially a slightly longer-term objective.

StarStone International also has a Liechtenstein-based company which is understood to be out-of-scope for the Watson deal.

JC Flowers has previously demonstrated appetite for the (re)insurance space, having formerly been a PE backer of Enstar. The two companies together also made an ambitious and ultimately unsuccessful approach for Transatlantic Re alongside Stone Point in 2011.

JC Flowers and Enstar also joined forces to bid for loss-making Lloyd’s carrier Omega in 2012, although the business was ultimately sold to Canopius.

In 2018, the PE house acquired independent brokers Endeavour and SSL, since rebranded as Oneglobal.

StarStone had been attempting to turn around its Lloyd’s operation for many months.

In 2018, StarStone Syndicate 1301 was the worst-performing syndicate in Lloyd’s with a 177% combined ratio. For 2019, the syndicate remained in the lowest quartile for Lloyd’s players, with a combined ratio of 130.5%.

Enstar remains involved in the Lloyd’s live market through its ownership and investment in Atrium.

In June Insurance Insider revealed that Watson is working with former colleagues Stuart Bridges and Russell Merrett on a Lloyd’s and Bermuda start-up (re)insurer.

He is one of a number of (re)insurance executives looking to raise capital to fulfil scale-up or start-up ambitions, as PE money circles the sector.

Martin Reith, Dinos Iordanou and Mitch Blaser are among the executives looking for a re-entry into the market, while Convex, Ark and Beat Capital are all understood to be exploring fundraises.

Watson, JC Flowers and Enstar declined to comment.

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