Maiden, GMAC Re Create Reinsurance Force

The marriage of Bermuda-based Maiden Insurance and GMAC Re couldn't have come at a better time.

The deal, announced earlier this month, snatched the 25-year old regional reinsurer GMAC Re from the grips of the financial turbulence that has staggered its parent GM and GMAC Financial Services, and tossed the young Bermuda start-up, Maiden Insurance of Bermuda, from relative obscurity to a reinsurance powerhouse.

Karen Schmitt, chief operating officer of the newly combined entity, described the deal as "the perfect marriage of [GMAC Re's] desire to be a stand-alone company and Maiden’s desire to add the infrastructure and add the additional business so that they could be of significant size."

Combined, the newly formed Maiden Re, based in Mount Laurel, N.J., expects to have about 1 billion dollars in premium writing after fully transitioning. "We’ll be close to $800 million in surplus initially and expect, with earnings, to grow that to a billion, hopefully pretty quickly," said Schmitt, who joined GMAC Re in 1999 as a chief actuary.

Until recently, GMAC Re was in a very different position. "We had been an A+ company for a very long time, and when GM started having its issues, we were downgraded," she said. "As a reinsurer, that’s a really tough place to be."

In response, GMAC Re came up with several ways to sustain its business. Among them, the reinsurer developed the Dedicated Financial Trust product, an individually segregated trust not shared with other cedant funds. The product now has become a main selling point. In addition, GMAC Re restructured its business in a way that separated the insurance entity from the rest of GMAC Financial.

Even still, the company kept an eye out for potential opportunities to become a stand-alone reinsurer -- a way to be a complete and independent entity from GMAC Insurance. For the full year 2007, the company wrote about $550 million in premium. Schmitt said that did not make the company big enough to be a stand-alone reinsurer.

So, when the Maiden opportunity came, GMAC Re couldn't resist. The two entities are a lot alike, Schmitt said. "Our philosophies are actually very similar. Neither company wrote a tremendous amount of cat-exposed business -- certainly, as a reinsurer we do have some cat element in the book, but we’re not really a market for stand-alone cat coverage," she said.

Also, Schmitt added, "neither company is tremendously interested in volatile lines of business, like professional liability. We both like the regional space -- that has been our forte for at least 15 years."

But in many ways, the two entities have unique differences. Unlike GMAC Re, Maiden has only been around for a little more than a year, and was, until the acquisition, focused almost exclusively on a large quota share arrangement with AmTrust. To some extent, "they were probably more of a market for MGA-driven business than we’ve been historically," said Schmitt.

GMAC, on the other hand, is bringing a very experienced management team and a chunk of business that has been very stable over a long time. "It may surprise some people to know that GMAC Re has operated as a reinsurance company for 25 years. We’re not the new kid on the block. We’re really not a new Bermuda startup," Schmitt said.

GMAC Insurance Group currently has a Best's Financial Strength Rating of A- (Excellent).

(By David Dankwa, senior associate editor, BestWeek: [email protected])