Bermudian financial guarantee reinsurer Ram Re has announced plans to float on the New York Stock Exchange. But the timing of the move has been questioned by some.
In accordance with U.S. Securities and Exchange Commission requirements, the reinsurer has not disclosed when it hopes to complete its initial public offering, or its expected proceeds from the sale. The proposed price range of the firm's common shares will be included in an amendment to its existing registration filing, according to Ram Re's general counsel Victoria Guest. Banc of America Securities and Merrill Lynch will act as joint bookrunning managers on the deal.
One investment analyst, who asked not be named, thinks the timing of the IPO is poor. He believes the company is looking to go public because it was the ultimate goal of the investors who formed Ram Re in 1998, not because investors will be especially bullish about the stock.
"The macro environment for this kind of business is in a historical trough," he explains. "Interest rates are so low you can't make money on the float; you have to make it on your underwriting. But the spreads between AAA-rated and A-rated municipal bonds are so tight that these companies can't price their product high enough."
Financial guarantee companies are trading cheaply as a result of these market conditions, says the analyst.
But Ram Re defends the timing of its IPO in its filing. It says gross written premiums have grown consistently, increasing at a compound annual rate of nearly 33% between 2000 and 2004, and by a further 15% in the first nine months of 2005. As of Sept. 30, about 85% of this premium was derived from quota-share treaties with three of its longstanding clients: MBIA, Financial Security Assurance and Ambac.
Also, the firm says its AAA credit rating from Standard & Poor's and its narrow focus on the municipal bond and asset securitization markets leaves it well-positioned to capitalize on the dearth of financial guarantee reinsurance capacity. Ram Re is also rated Aa3 by Moody's.
"Underwriting capacity is more limited now than it was in 2002, and we believe such capacity is not likely to increase in the immediate future," says Ram Re in its SEC registration for an IPO, filed on Feb. 10. "Many of the large multiline insurance companies that began participating in the financial guarantee reinsurance market in the 1990s have exited the market in order to refocus on their traditional lines of business." It adds: "The rating agency criteria for financial guarantee reinsurance companies have also become more stringent, making it more difficult for new competitors to enter the market."
In accordance with U.S. Securities and Exchange Commission requirements, the reinsurer has not disclosed when it hopes to complete its initial public offering, or its expected proceeds from the sale. The proposed price range of the firm's common shares will be included in an amendment to its existing registration filing, according to Ram Re's general counsel Victoria Guest. Banc of America Securities and Merrill Lynch will act as joint bookrunning managers on the deal.
One investment analyst, who asked not be named, thinks the timing of the IPO is poor. He believes the company is looking to go public because it was the ultimate goal of the investors who formed Ram Re in 1998, not because investors will be especially bullish about the stock.
"The macro environment for this kind of business is in a historical trough," he explains. "Interest rates are so low you can't make money on the float; you have to make it on your underwriting. But the spreads between AAA-rated and A-rated municipal bonds are so tight that these companies can't price their product high enough."
Financial guarantee companies are trading cheaply as a result of these market conditions, says the analyst.
But Ram Re defends the timing of its IPO in its filing. It says gross written premiums have grown consistently, increasing at a compound annual rate of nearly 33% between 2000 and 2004, and by a further 15% in the first nine months of 2005. As of Sept. 30, about 85% of this premium was derived from quota-share treaties with three of its longstanding clients: MBIA, Financial Security Assurance and Ambac.
Also, the firm says its AAA credit rating from Standard & Poor's and its narrow focus on the municipal bond and asset securitization markets leaves it well-positioned to capitalize on the dearth of financial guarantee reinsurance capacity. Ram Re is also rated Aa3 by Moody's.
"Underwriting capacity is more limited now than it was in 2002, and we believe such capacity is not likely to increase in the immediate future," says Ram Re in its SEC registration for an IPO, filed on Feb. 10. "Many of the large multiline insurance companies that began participating in the financial guarantee reinsurance market in the 1990s have exited the market in order to refocus on their traditional lines of business." It adds: "The rating agency criteria for financial guarantee reinsurance companies have also become more stringent, making it more difficult for new competitors to enter the market."
