Bermudian-based White Mountains Insurance Group has agreed to invest up to $1 billion of fresh capital into Ark Insurance Holdings Ltd and acquire a majority stake in the Lloyd’s of London insurer.

One of the results of the deal will an upgrade of Ark’s existing Bermuda operation into a Class 4 reinsurer — the largest category under the Bermuda Monetary Authority’s licensing regime — and the hiring of new underwriters on the island.

Ark is the parent company of Ark Syndicate Management Ltd, which White Mountains views as “well positioned to take advantage of the hardening market in property and casualty insurance”.

White Mountains will contribute $605 million of equity capital to Ark, which, before the new investment is taken into account, has a valuation of $300 million.

The Bermudian insurance group will also purchase $41 million of shares from Ark’s existing owners and commit to contribute up to an additional $200 million of equity capital to Ark in 2021.

White Mountains said in a statement today that total post-closing capitalisation will exceed $800 million and will exceed $1 billion if the additional $200 million is contributed in full. White Mountains expects the transaction to close in January 2021.

The news confirms reports in UK trade publications that Ark was about to receive a capital injection.

And it comes in the week that Chaucer, another Lloyd’s syndicate manager, confirmed that it has applied to the BMA for permission to set up a Bermudian Class 4 reinsurer.

A sustained upswing in property and casualty insurance prices had led to many Bermudian re/insurers raising capital this year to take advantage of the hard market, including RenaissanceRe, Arch Capital, Fidelis, Convex, Hiscox and Lancashire.

Reasons for firming rates include three years of heavy catastrophe losses, rising court awards driving up the cost of professional liability insurance, trapped capital in insurance-linked securities and uncertainty of the extent of losses to emerge from the Covid-19 pandemic.

Ark, which was founded in 2007 by Ian Beaton and Nick Bonnar, manages the underwriting of syndicates 4020 and 3902 at Lloyd’s.

The syndicates underwrite reinsurance and insurance, including property, accident and health, energy, marine and political risks.

Ark has approximately $500 million of stamp capacity — the amount of business a Lloyd’s syndicate is authorised to write in a year of account.

“With White Mountains’ capital, Ark plans to grow its business substantially by (i) increasing aligned capacity at its Lloyd’s syndicates to 100 per cent, (ii) increasing overall stamp capacity, (iii) converting Ark’s existing Bermuda reinsurance entity into a Class 4 reinsurer and (iv) hiring talented underwriters in the London and Bermuda markets,” White Mountains stated.

Manning Rountree, chief executive officer of White Mountains, said: “Ian, Nick and the rest of the Ark team have built a high-quality insurance business that puts underwriting first. We are delighted to partner with them, and we are excited about the market opportunity in front of us.”

Ian Beaton, CEO of Ark, said: “We are delighted to have found the right capital partner in White Mountains, an institution with a long track record of successful insurance partnerships. We look forward to a fruitful relationship.”

At closing, White Mountains will own 72 per cent of Ark on a basic shares outstanding basis (63 per cent on a fully diluted, fully-converted basis, taking account of a sweat equity plan for the go-forward Ark management team).

If the additional $200 million is contributed in full, White Mountains will own 77 per cent of Ark on a basic shares outstanding basis (67 per cent on a fully diluted, fully converted basis).

All shares outstanding not owned by White Mountains will be owned by management rollover shareholders, primarily Mr Beaton and Mr Bonnar.

Slaughter and May acted as legal adviser to White Mountains. Evercore and TigerRisk Capital Market & Advisory acted as financial advisers to Ark, and Willkie Farr & Gallagher (UK) LLP acted as legal adviser to Ark.