Esser engages Macquarie to advise on dedicated MGA insurer start-up V Cap

Former Cooper Gay CEO and industry entrepreneur Toby Esser is in talks with potential investors to finance a new rated insurer that will partner specifically with top-quartile MGAs, The Insurer can reveal.

Esser has engaged the New York arm of investment bank Macquarie to explore potential private equity interest for the venture, which has been given the exploratory name V Cap.

A source close to the process says discussions with investors are at an early stage but there is “clear initial interest” because of the “novel nature of the proposition and the essential importance of MGAs as the entrepreneurial and innovative arm of specialty insurance”.

The Insurer understands V Cap will look to establish an A- financial strength rating, widely considered as the minimum bar to write US and international commercial business. It will then seek to address the challenge MGAs face of securing long-term, reliable capacity by providing top-performing MGAs with paper across all of their facilities.

V Cap won’t look to squeeze out existing markets and will typically look to be a 20-30 percent capacity participant across an MGA’s entire book.

If it goes live, V Cap will also position itself as a hybrid MGA incubator platform with the potential to provide start-up capital in exchange for a minority stake in MGAs.

The choice of Macquarie is not a surprise considering the Australian bank’s established financial services practice and Esser’s long-standing relationship with Marc Berman, the former head of insurance investment banking at RBC Capital Markets. Berman – who joined Macquarie in 2017 as a senior adviser – is thought to be leading the project together with his colleague Jonny Allison.

The size of the potential raise is currently unclear but it is likely to be in excess of $200mn if V Cap wishes to benefit from an initial AM Best financial strength rating. Rival S&P does not provide start-up ratings.

“The idea is to create a highly efficient and streamlined operation with technology at its core and a number of critical functions including regulation and compliance initially outsourced,” explained a source.

“Toby understands the world of MGAs inside out. He knows they cannot have their underwriting micro-managed but equally it is essential they write within agreed parameters. He also knows the challenge MGAs face in a hard market of securing long-term, high-quality rated capacity but equally he is firmly of the view that the industry is evolving where MGAs will play a critical role in underwriting specialty risks of the future as long as the issue of alignment of interests with capital can be resolved. This is where V Cap will come in.”

Recent research by Conning shows gross premium written by “independent” US MGAs has grown by 10 percent per annum on average over the past five years – twice as fast as the underlying P&C sector.

The global MGA market is estimated at $100bn in annual premiums, with around $60bn in the US. However, the vast majority is effectively controlled by insurers/primary carriers and only around 10 percent is genuinely independent.

The potential launch of the platform would mark a swift return for Esser following the closure of his independent Lloyd’s broker AFL, which he restructured before selling on its existing business together with team moves.

Esser was not available for comment at time of going to press. Cooper Gay rebranded as Ed in 2016.