A big offering

Despite the insurance market’s instabilities, reinsurance company Benfield is expanding rapidly, helped by its recent IPO and the purchase of EW Blanch. Steve Hoare reports

It’s a litigious industry,” understates Benfield general counsel Derek Walsh. With the ‘War on Terror’ imposing increasing pressure on the insurance industry, one would think that Walsh and his team had enough to deal with, but the company’s chief lawyer has plenty of other concerns. In June, Benfield settled a $180m (£107.5m) shareholder class action in the US. It also launched an initial public offering (IPO) on the London Stock Exchange – the biggest Europe had seen in 2003. In a company that has grown from 66 employees with a turnover of £42m in November 1995 to a £300m listed reinsurance giant in 2003, things are never dull.

Benfield has grown by acquisition and that growth has been very rapid, since becoming the Benfield Group after a 1988 management buyout by the late Matthew Harding (pre-Russian Revolution Chelsea FC’s first financial saviour), John Coldman (now Benfield chairman) and Grahame Chilton (now group chief executive).

The current legal team began to take shape in 2001, when Benfield was about to make its biggest acquisition. It purchased US-listed company EW Blanch for $179m (£106.9m), and Walsh, then at Pinsent Curtis, was invited to Benfield on a six-month secondment to help effect that transaction.

Walsh was on the verge of partnership with Pinsents when Benfield’s former group legal counsel Tim Burton departed in the opposite direction, joining Pinsents towards the end of 2001. After a short period together at the firm, Walsh was approached by Benfield to succeed Burton. Despite a promising career in private practice, Walsh could not resist the pull of Benfield. He became group general counsel in April 2002.

“It is a business that people love working in,” says Walsh. “I didn’t really want to come out of private practice. This is probably the only one of my then clients that I would have moved for, and the opportunity at my age [33] to become general counsel of what would be a listed company was an unbelievably attractive proposition.”

Following the completion of the purchase of EW Blanch in May 2001, Benfield inherited an established legal group of five lawyers in the US. The team has now doubled to 10 split equally between the headquarters in London and the US. Walsh recruited a commercial lawyer from corporate adviser Ashurst Morris Crisp. The team also includes a litigator, a compliance/regulation person, and a lawyer who assists Walsh with company secretarial duties. He is also in the process of recruiting an employment lawyer.

Following the EW Blanch acquisition, Benfield worked on integrating the company and studying its options. It had borrowed £300m to buy Blanch and the chief executive wanted to reduce that debt and create liquidity for shareholders. “Seeking a listing was a natural progression. We looked at floating on the US market and our two major competitors are listed in the US,” explains Walsh. To add an extra layer of complexity Benfield decided to redomicile in Bermuda, giving the company the option of listing wherever it wanted. “Bermuda has become one of the major players in the reinsurance market and being domiciled there gave us a platform to develop our business globally and to consider the appropriate market to list in,” says Walsh.

The firm became domiciled in Bermuda in October 2002. It was a complex process and Walsh sought advice from Ashursts, Debevoise & Plimpton and the London office of Bermudian firm Conyers Dill. Approval had to be granted by the courts in London and consent had to be obtained from the group’s 600 shareholders. A new holding company was established, which meant the redrafting of the group’s constitutional documents to comply with Bermudian law, the reclassification of the categories of shares and the redenomination of the company’s share capital into dollars. “It was a painful process,” says Walsh.

Then work began on the IPO. “Businesses are never ready to IPO,” says Walsh. This one, he says, was a “horrendous” challenge. “A lot of people were trying to raise capital for a year and nobody could get it away. The capital markets were down on their knees at that stage and therefore the preparation we had to put in was very careful. Being a Bermudian company adds its own complexities.” The £157m offering was in the UK and the US, via a section 144a offering. “In addition, we have offices in about 20 jurisdictions which meant we had to coordinate lawyers in 20 jurisdictions,” says Walsh. He adds that Ashursts was his “centre-forward” on the deal, which again saw Debevoise and Conyers Dill helping out.

Ashursts and Debevoise also helped with finding appropriate lawyers for the other jurisdictions. Although Walsh has preferred firms in countries such as Brazil, where Benfield has an office, he had to seek advice about some of the more obscure jurisdictions.

“My ethos is that I want to run quite a tight ship. We would outsource litigation proceedings. If we were to do a merger we would outsource, particularly because that often involves multijurisdictional issues. Interestingly, we sold a major provider of services in the US recently and that was all done internally, but if we were to buy a company then we would outsource,” says Walsh.

As Walsh explains, although it is a litigious industry, Benfield has largely avoided the courts. The exception was after the purchase of EW Blanch. The company had a class action for $180m (£107.5m) against it as well as a smaller software dispute. Walsh says he is “extremely thankful” to Minneapolis-based Faegre & Benson, which represented Benfield in the case. It only just settled in June 2003.

The only other litigation Benfield gets involved in is coverage disputes. Walsh compares these to the disagreements over compensation levels between the insured and the insurer that result from a car crash. “But when you’re talking about the World Trade Center, or ships or hurricanes in Jamaica, the money is quite big,” he says. As a reinsurance intermediary, Benfield does not get directly involved, but Walsh and his team will always assist Benfield’s clients with these disputes.

“When I joined Benfield, it had a sort of kudos about it and a mystery that it still has to a certain extent,” says Walsh. He is clearly enthused by the environment in which he finds himself, despite quipping: “Nobody chooses to go into insurance, everybody ends up there.”
Derek Walsh
Group general counsel

Organisation Benfield
Sector Reinsurance
Employees 1,600
Legal capability 10
Turnover £300m
Annual legal spend $2.5m (£1.5m)
Group general counsel Derek Walsh
Reporting to Group chief executive Grahame Chilton
Main law firms Ashurst Morris Crisp, Conyers Dill, Debevoise & Plimpton, Eversheds, Pinsents