Bill Ackman has laid out ambitious plans to build Bermudian-based Vantage into the centrepiece of parent group Howard Hughes Holdings, saying the insurer now has a “dream team” leadership.

The billionaire investor said in an earnings call yesterday that HHH intended to direct increasing amounts of capital towards Vantage, with the long-term goal of becoming “disproportionately an insurance holding company” rather than a real estate company with an insurance operation.

Mr Ackman is executive chairman of HHH, who acquired Vantage for $2.1 billion this year and then recruited former Arch Capital Group chief executive Marc Grandisson as executive chairman of the insurer.

David Gansberg, a former co-president of Arch, is due to take over as Vantage's chief executive after his non-compete agreement expires next year.

Part of Vantage’s transformation involves a much greater allocation to common stocks in Vantage’s investment portfolio. The group has shifted to a structure under which Vantage's insurance reserves are backed by short-term US Treasuries, with the remaining capital increasingly invested in large-cap public equities.

Ryan Israel, HHH’s chief investment officer, said equities now make up about 40 per cent of a portfolio that was invested entirely in fixed-income securities at the time the acquisition closed in early June. He added that the proportion of stocks could ultimately rise above 50 per cent.

Mr Ackman said: “We have a senior leadership team with enormous horsepower, stepping into a very small, very young operation, and we’re very excited about what can be achieved.

“The market does not yet understand the significance of this announcement.”

He added that the next priority was to put more capital behind Vantage so it could take advantage of the opportunities available to its new leadership team.

Mr Ackman made clear that Warren Buffett’s Berkshire Hathaway was an important influence on the strategy.

He said the vast majority of Berkshire’s value had been created through its insurance operations and the combination of selective underwriting and intelligent investment of insurers’ assets.

“That’s why we acquired Vantage,” he said. “That's why we recruited Marc and David. That's why that’s really going to be a big focus of the business going forward.”

Howard Hughes plans to help fund Vantage's expansion by recycling capital from its extensive real estate portfolio.

Mr Ackman said the priority for “every incremental dollar of free cashflow” was to put it into Vantage, while HHH expects to generate between $2.5 billion and $3 billion of excess free cashflow over the next five years.

Mr Grandisson said Vantage had a solid foundation from which to pursue the group's ambitions.

Founded in late 2020 with about $1 billion of capital, the company has developed into a diversified specialty insurance and reinsurance platform.

HHH has since made an additional $300 million capital contribution, while Pershing Square, Mr Ackman’s investment firm, is managing Vantage’s investment portfolio without charging a fee.

Mr Grandisson said permanent capital would allow Vantage to underwrite with a focus on multiyear returns and that its relatively small size left “ample room to grow selectively”.

The growth plans come despite a difficult second quarter in which Vantage's combined ratio deteriorated to 101.6 per cent from 94 per cent a year earlier.

The result included $18 million of catastrophe losses related to the conflict in Iran and $19 million of adverse prior-year reserve development, largely related to its discontinued transactional liability business.

Mr Grandisson said Vantage would put underwriting profit ahead of premium volume and maintain conservative reserving while expanding and diversifying its business.

He said the wider property and casualty market was largely in the “third stage” of the insurance cycle, where rates were moderating or declining but disciplined insurers could still find profitable opportunities.

Casualty remained closer to the harder second stage of the cycle, while some property and short-tail lines were already moving into a more competitive fourth stage.

Vantage’s size should give it room to manoeuvre as conditions change, Mr Grandisson said.

“I think we're undersized for what we can do in terms of capability,” he said. “We can definitely pick our spots a bit better than otherwise.”

Mr Grandisson said the company would spend the next year deepening its underwriting expertise, broadening its products and attempting to establish Vantage as a destination for leading underwriting talent.

“We are in the early innings of a multiyear story,” he said.