Reinsurance company Validus Holdings Ltd will test investor enthusiasm with an initial public offering it hopes will raise as much as $468 million when it becomes the fourth in its sector this year to tap US public markets.
The Bermuda-based company, one of several reinsurers to stage IPOs in recent months, has filed to sell 18 million shares with an anticipated per-share price range of $24 to $26. The company initially anticipated raising $200 million in its IPO but raised expectations after it acquired an underwriting syndicate in the historic Lloyd'rket.
"A successful the pricing. This one seems likvorably compared to its peers," said Francis Gaskins, president of independent research firm IPOdesktop.com. Investors will find Validus' price-to-book-value appealing, Gaskins said. At 1.1, Validus is cheap versus its peers' range of 1.1 to 1.6.
Validus, along with CastlePoint Holdings Ltd, Flagstone Reinsurance Holdings and Greenlight Capital Re, were formed after the catastrophic 2005 hurricane season and the others made their US market debut this year.
With a market capitalisation of about $1.8 billion, Validus is the largest, followed by Flagstone, with a market value of $1.13 billion. Flagstone raised $175.5 million in a March 29 IPO.
The 13 million share offering sold for $13.50 per share, in the middle of a $12.50 to $14.50 forecast range. The shares have lost a bit of ground since, closing at $13.36 on Thursday, about 1 percent lower.
Greenlight Re has fared better - it fetched $19 per share in its IPO, and has added about 22 percent in value, with the shares trading at $23.27 on Thursday. Greenlight has been helped by its ties to hedge fund firm Greenlight Capital Re, analysts said. Validus may also profit from its connections.
Investors, including major private equity and hedge fund firms such as Blackstone Group and Citadel Investment Group, poured money into more than a dozen new reinsurance companies following the 2005 hurricane season, remembered for the $60 billion in insurance claims stemming from deadly storms Katrina, Rita and Wilma.
Validus, one of the members of the so-called Class of 2005, was formed by an investor group led by Aquiline Capital Partners LLC, a private equity firm formed that same year by ex-Marsh & McLennan Cos. Chief Executive Jeffrey Greenberg.
Validus timed its entry into the reinsurance market perfectly. Reinsurers provide risky coverage to other insurers, and generally swing from periods of strong profits to hefty losses.
Validus, primarily a property-catastrophe reinsurer, was formed when reinsurance rates were rising steeply, and as luck would have it, ahead of a period of benign catastrophe activity.
The 2006 storm season was mild, so the company hasn't taken any major losses yet, said Bill Bergman, an analyst with Morningstar, putting the fledgling company on track with a solid record of profits.
For the year ended December 31, 2006, its net income was $183 million. Quarterly net income for the three months ended March 31, 2007, was $56.75 million, compared with $14.68 million in the same period a year earlier.
The quality of the company's balance sheet is compelling, said IPOdesktop's Gaskins, but investors should be aware that losses will eventually catch up with the reinsurer.
"They're okay until the next major catastrophe," Gaskins said. Validus, like the other new reinsurers, has tapped into rosy market conditions post-Katrina. "They're not alone," Bergman said. "There's been a lot of new entry into the marketplace, and rates that were high a couple of years ago are declining, and continuing to decline,"he added.
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