Topsail Re eyes $1bn+ landmark; ‘surprised’ to lead 80% of treaties

Topsail Re will exceed $1 billion of premium this year, a culmination of rapid growth in the past two years as it has leveraged its unique market position and bullish market conditions. But it has no plans to depart from its business model, which is based largely on quota share business and getting close to clients. 

That is the message from David Johnson, chief executive of Topsail Re, who is attending Monte Carlo this week on a high. He told Monte Carlo Today  that the pace of its acceptance as a credible market player since founding Topsail Re surprised him. It now acts as the lead market on more than 80 percent of its treaties, despite typically not taking the biggest share. 

“We continue to aggressively invest in exceptional talent.”

“I believe that is because of our creative and nimble approach. We are looking for long-term clients; we’re not just a transactional reinsurance capacity provider,” Johnson said. “We were looking at the equation to be a true long-term partner. 

“To support our growth, we continue to aggressively invest in exceptional talent, leading analytics, operating systems and the processes needed. We remain nimble, but with the appropriate resources needed for a book of this scale.”

The growth curve of the privately-held reinsurer, formed in 2018 with investment from three high-net-worth individuals including Johnson, has been remarkable. Domiciled in the Cayman Islands, it has elected to be treated as a US taxpaying entity under section 953(d) of the US Tax Code. Johnson describes Topsail as a traditional, balance sheet reinsurer, which posts collateral as well. “That gives clients the ultimate security,” he said.

The business model worked. Since its launch in 2018, premiums have increased from $95 million in 2019 to $530 million in 2022 and some $925 million in 2023, all while delivering consistent results. 

Johnson forecasts premiums for 2024 will reach circa $1.25 billion. “We started in a very modest fashion with the intent never to lose money. We have never burned cash because our cash is our capital, a function of our preservation of capital model. That was how we operated for the first couple of years, and that principle remains unchanged,” he said.  

In around 2021, Johnson realised that Topsail had grown to be a true market player. “We saw that we’re leading 80 percent or more of our deals. That shocked us at first because we are often a smaller player on the syndicate. But we have to understand why: clients appreciate the personal, client-centric, very responsive approach we offer.”

Some 97 percent of the business is quota share. It has grown alongside core clients, taking ever bigger premium lines and benefiting from a hardening market on many lines. 

“That said, we’re not going to grow unless the market’s right to grow. That’s the beauty of having no pressure from outside investors. We’re happy to shrink if the market is not in the right place,” Johnson explained.

Topsail has already proved this. While rates in most lines have trended positively, non-standard auto is one example of where rates were not always deemed adequate. Johnson says that he prefers not to exit any line completely, thereby leaving the door open for when conditions improve, but is willing to retract significantly.

“We did not renew a lot of that business in January 2021 because we could see it was not being priced appropriately at the front end, and the reinsurance terms were not reflective of that inadequacy. The market has changed since then and that line, just as we predicted, is coming back now on much better terms,” he said. 

Nimble but robust

Christopher Miller, chief strategy officer, Topsail Re, who joined the business from McGill and Partners earlier this year, noted that this exemplifies the company’s ability to be nimble. He doubles down on Topsail’s differentiated proposition and position in the market.

“Our business model and operating approach is rather atypical,” Miller said. “We are privately held, yet we write in excess of $1 billion; we trade daily off a traditional balance sheet, but also collateralise our obligations. We are in the risk business, but we are generally risk-averse, preferring to use our capital for surplus or leverage relief versus earnings smoothing. 

“Our clients and partners are most often private equity-backed or publicly traded, yet we operate as a long-term and perpetual business. Finally, while we remain small enough to be agile and highly responsive we operate with a very robust team, infrastructure and service offering.”

Miller commented further on Topsail’s market position, noting: “You have the traditional legacy reinsurers with enormous global reach and balance sheets. Then you have the newer players offering collateralised reinsurance, predominantly as following markets. 

“We sit somewhere in between, sharing traits of some, but operating counter to others. We are generally seen by our clients as a true lead market, and we have built the infrastructure and talent to support that.” 

For more news from the Rendez-Vous de Septembre (RVS) click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.