Legacy: inside the landmark $3.6bn Enstar and Aspen deal

The mood at Enstar Group is understandably “positive and bullish” after the run-off specialist completed its landmark $3.6 billion loss portfolio transfer (LPT) deal with partner Aspen in May 2022.

As the leader of Enstar’s mergers and acquisitions (M&A) and strategy functions, David Ni, chief strategy officer, had a front row seat.

“ Aspen is the largest transaction we’ve done in Enstar’s corporate history, so clearly a landmark one for us and probably a landmark for the industry as well. It’s the third largest ever in the run-off industry globally as well, so certainly a great transaction to get closed and we’re thrilled about it,” Ni told Intelligentinsurer.com.

The massive size of the deal is not in question but Ni added that “it feels bigger than it is because it takes a community of people to get it done”.

This community brought together a diversity of experience, perspectives and expertise to make the best decisions, he explained. In practice this means that for a transaction such as Aspen, even though the M&A team coordinated the transaction overall, Ni and his team were in constant dialogue, inviting views and bringing in expertise from investments, risk, claims, operations, legal, finance, treasury and capital.

“It’s a full organisational effort to get something like Aspen done,” he said.

Ni also gives credit to the partner firm Aspen, adding that there was a large number of people at Aspen working hand in hand and very collaboratively with Enstar. This ensured that the organisations, with their own objectives, structured and crafted something that worked for both of them.

This deal represents a very large book but, Ni said, Enstar was still able to “diligently analyse the reserves and get our arms around the risk”.

“We feel comfortable with the risk we are taking on and understand where the risk pockets are with this portfolio and the reserve base. We were able to structure a pricing deal that we thought was a fair compensation for the risk we’re taking on, and it had a nice risk:reward profile to it.”

Alignment between Enstar and Aspen was central to all this, particularly in terms of incentives and outcomes, culture, and structural and contractual elements.

“This is our second time working with Aspen and that goes a long way. All those components came together in a balance and this made the transaction attractive for us now,” Ni said.

A very large book of business

Taking on such a large book of Aspen's legacy reserves is not for the faint-hearted. How will it sit within Enstar’s existing portfolio?

Ni explained that the firm is “laser focused on execution and integration” and he is “confident” in the firm’s ability to manage and execute on this well.

Such confidence comes from knowing that for decades the ability to come up with a detailed plan and deliver on it has been the backbone of the firm, he said.

“Our approach to this Aspen transaction is very much the same. We’ve had months to collaboratively come up with the detailed plan and since closing we’ve already made good progress on the execution of it.”

Ni fully expects to be able to manage this huge book as successfully as the firm has its other portfolios.

But this is no ordinary portfolio, which Ni acknowledges as he considers what such a colossal transaction means for Enstar’s portfolio and reserves as a whole.

“It’s already coming in as a very diversified and reserved base,” he explained. “What we took on was Aspen's 2019 and prior global reserve base, so it’s well diversified when it comes to insurance versus reinsurance, geography, and lines of business. We don’t think there’s a need for us to rebalance or reposition our portfolio, taking a step back, or that we’re over-concentrated.

“We’re focused on the execution and making sure we deliver on what we think are the opportunities on the management of the reserves,” he said.

It takes two

Partnership is at the heart of this deal, said Ni, describing Aspen as a firm with the same commitment to long-term partnerships as his, and the same definition of what success means.

“Whenever we think about transactions we’re really thinking about partnerships. A lot of the best transactions we do are repeats of what we do with clients and partners we’ve worked with in the past. We’ve done transactions with QBE, AXA, Allianz, and RSA—multiple transactions with each of them.”

Longevity of relationships is a theme that Ni keeps returning to, and he explains why.

“When we think about our transactions and repeat clients, success for us is a long-term view; it doesn’t stop at the signing or the closing of a transaction. It is when the last claim is run off in many years’ time and policyholders are treated fairly and paid; when the management of it has gone smoothly from our cedants’ perspective; when the regulators look at this book of business and see how it’s been run off, and feel comfortable about the management of that book,” he said.

This long-term view explains why Ni and his colleagues have no intention of taking their eye off the ball.

“Our message consistently to the market is that we’re active and open to providing solutions that are creative, that require a commercial mindset, that require the financial heft to be able to deliver in large size and large scale. Aspen is a very tangible example of that, and we’re open for more business as well.

“ Aspen is clearly a large transaction but it hasn’t sidelined us in terms of new business—we’re actively looking for business, we have a strong capital and liquidity profile, we have boots on the ground in all our insurance markets that are ready to execute, so we’re very much looking forward to doing more of the Aspen-type transactions that are attractive and successful for us,” he explained.

Ni said the completion of the LPT gave his firm a “fantastic credential”, adding that he hoped it will bring more awareness and attention to some of the run-off solutions that could be “truly additive”.

It’s clear that the $3.6 billion deal has far from satisfied Enstar’s appetite for large deals, as Ni said he “certainly hoped” to see more deals like this one in the future.

“We’ve been one of the most consistent players and participants in the run-off space and we’ve never been known to be anything but very innovative and forward-moving, we don’t stand still.

“We’re very positive and bullish on the outlook and we’re excited to see where the next phase goes,” Ni concluded.