Insurance for the Cannabis Industry

Industry

Insurance

Company Type

Cannabis Insurance

Location

US

Size

$150  Million

Investment Type

Equity
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Helping Great Companies Grow

Overview

  • Aventine Hill Holdings LLC (AHH) is building an insurance platform targeting the cannabis industry seeking $150 million of equity to capitalize and launch its operations nationally
  • The legal cannabis (including hemp) market has very little insurance coverage in the US
  • AHH plans to launch a well-capitalized (i.e., sufficient to achieve an A or A- rating from Demotech initially, and then from AM Best as soon as practicable), multi-state admitted insurer (versus surplus lines insurer)
    • management believes existing admitted insurers in the space are small, regional multi-lines with insufficient capital to write meaningful premium volume or are only writing surety bonds
    •  a well-capitalized, multi-state, specialist insurer with strong ratings (at least A- from AM Best) should have a marketing advantage and can use its scale to dominate the existing fragmented and immature market
  • To accelerate introduction to the market, AHH has identified and intends to buy an insurance shell company and become licensed in all applicable states/countries
  • Management has deep experience in all phases of the insurance company life-cycle (from start-ups to publicly-traded multi-nationals), and within all segments of the industry (insurance, reinsurance, underwriting, claims, operations, etc.)
Helping Great Companies Grow

Opportunity

  • The worldwide cannabis market is estimated at $344 billion (New Frontier Data)
  • The state-legal cannabis market in the US is estimated to be about $25 billion in direct sales by 2021 (New Frontier Data) excluding Hemp which is another underserved market
    • US beer-wine-liquor retail sales $60 billion in 2019 (statista)
    • US athletic footwear industry of $15.2 billion in 2018 (statista)
    • NFL revenue of $15 billion in 2018 (nypost.com/2019/06/08/)
  • The legal cannabis market has very little insurance coverage
    • market dislocation arises from differences in federal and state treatment of cannabis, as well as from the industry’s immaturity
    • four existing carriers provide limited coverage with gaps in every line of business
      • general liability, product liability, business property, commercial auto, D&O, crop, crime, cyber, etc.
  • Surplus lines companies cover some of the gaps, but observed premiums are 60-80% higher than for an insured with similar (but non-cannabis) exposure
    • more lightly regulated and, therefore, policies are not subject to state review and approval – as such, policy exclusions that limit coverage can be vaguely worded and untested by regulators and courts
Helping Great Companies Grow

Solution/Strategy

  • AHH intends to launch a well-capitalized, multi-state admitted insurer
  • To move quickly to address the market dislocation, AHH has identified a shell company for acquisition and intends to become licensed in all applicable states/countries
  • $50 million of equity is expected to be sufficient to acquire the shell company and launch operations while the additional $100 million of equity will provide for a strong capital base
    • existing admitted insurers in the space are small, regional multi-lines with insufficient capital to write meaningful premium volume
    • a well-capitalized, multi-state, specialist insurer with strong ratings (at least A- from AM Best) will have a marketing advantage and can use its scale to dominate the existing fragmented and immature market
  • AHH plans to partner with strong international reinsurers via a world-class intermediary
    • efficient risk-sharing and other capital management techniques
    • knowledge of beneficial insuretech
    • source of market intelligence due to their wide range of business activities across the insurance industry
Helping Great Companies Grow

Management

Klaus Kunze

CEO

Over 40 years of experience in all aspects of the global insurance business. Over 24 years at Hannover Re, including as EVP and General Counsel, was involved in all aspects of the business, including underwriting (P&C and life), overseeing and resolving all claims globally, actuarial, financial reinsurance, and marketing. As GC, was responsible for all legal matters, including commutations and dispute resolution. Had supervisory authority for all US/UK subsidiaries and played a central role in numerous new ventures and acquisitions. CEO of DEPFA Bank’s worldwide insurance/reinsurance operations and founded two financial guaranty (surety/fidelity) insurance companies covering Europe and the US. Involved in the sale of DEPFA to HYPO Real Estate Bank AG. Senior advisor for Droege & Comp. U.S., specializing in investment and financial management, and consulting services. Partner responsible for the insurance and reinsurance business in the New York office of DLA Piper LLP. Frequent speaker on insurance and reinsurance topics for leading organizations. BA, Business Administration, Finance and JD, University of Bonn. Masters of Law, Kings College, London. Member of the Hannover Bar.

Diane Nergaard

President and COO

Diverse experience at major insurers, including Zurich, and several of its subsidiaries, Centre, and ZRNA. Worked in all aspects of the global insurance and reinsurance industry. Experience with full business life-cycle, including founding a number of insurers, completing acquisitions, and preparing for IPOs. Led Zurich’s team for its $2.9 billion acquisition and integration of Kemper. As SVP of Real Estate at Zurich, led the acquisition and renovation of One Stamford Forum and its subsequent sale to Purdue Pharma. Founding member of the Company Owned Life Insurance (“COLI”) group at Zurich, which wrote nearly $5 billion of business. Was instrumental in developing the COLI product as a joint venture among three Zurich subsidiaries (Centre, Kemper Life and Scudder Kemper Investments). Experience also includes acquisition of and management at a profit of impaired books of business, set up insurance companies for Centre and created a broker/dealer for Zurich Capital Markets. Started career at Crum and Forster – responsible for coordinating corporate legal strategy across various insurance subsidiaries. Often invited as a speaker at industry conventions and was recently appointed to the American Bar Association’s Cannabis Task Force as a Vice Chair. BA, High Honors, University of Virginia. JD, Tulane University Law School. Member of the New York Bar.

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Thanks, Ken

Ken Margolis | Managing Partner Castle Placement, LLC
1460 Broadway Street, Rte 400
New York, New York 10036
(212) 418-1188 | C: (516) 712-7784
kmargolis@castleplacement.com

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