Offer third-party backed alternative reinsurance capacity or lose out: Aspen CEO

by Artemis on May 1, 2013

Aspen Insurance Holdings Limited, the insurance and reinsurance group that recently launched its new Aspen Capital Markets division to capitalise on the growing alternative reinsurance market and interest being shown in reinsurance by capital markets investors, announced its Q1 2013 results last week. It also held an earnings conference call at which Aspen’s CEO Chris O’Kane discussed the companies plans to utilise third-party capital.

Aspen is the latest reinsurer to launch a division dedicated to managing third-party investors capital, utilising Aspen’s underwriting resources and deploying the capital into catastrophe reinsurance transactions to earn premium shares for itself and the investors as well as management fee income.

It’s a trend we’re seeing increasingly frequently, as reinsurance groups position themselves to take advantage of the growing interest in insurance and reinsurance-linked investments, and look to create platforms to take advantage of capital market investors appetites for catastrophe risk returns.

Overall Aspen had a decent first-quarter with net income after tax of $91.8m reported. Chris O’Kane commented; “We delivered good operating results in the first quarter, with an improvement in the combined ratios in both Reinsurance and Insurance, favorable prior-year reserve development and continued traction in our U.S. Insurance operations.”

O’Kane commented during the earnings conference call that Aspen had anticipated that property catastrophe rates would weaken as the year progressed and so allocated more of its aggregate capacity at the January renewals this year. He said that it may not renew some of its accounts at mid-year if pricing is not attractive enough as well. Aspen had previously said that it planned to reduce its exposure to wind and quake in U.S. property insurance and that it would deploy some of that capital into new business opportunities where return targets may be more easily met.

On this earnings call O’Kane described the new ventures, including its new third-party capital management efforts, as areas where some of that excess capital would be deployed, perhaps suggesting that Aspen would seed any future fund launches with some of its own capital.

The Aspen Capital Markets Division, launched a fortnight ago and being headed up by Brian Tobben, formerly of PartnerRe, is one such new business opportunity which Aspen could redeploy capital into, said O’Kane. Commenting on the appointment of Brian Tobben, O’Kane said; “He joins us with extensive and profitable expertise managing ILS funds and he is going to help lead our efforts leveraging our internal underwriting expertise and increasing our management of third-party capital.”

O’Kane explained that with Aspen Capital Markets the firm is trying to create new capacity in-house just for Aspen as well as manage third-party capital. He said that he expects the new division will do some deals at the upcoming June renewals, but that it wouldn’t be enough to move the firms premium exposure much. That perhaps suggests that Aspen will largely utilise its own capital for the June renewals as O’Kane said that he expected the real impact from the new third-party capital management activities would be seen in 2014.

O’Kane would not be pushed on questions about how much capital Aspen hoped to attract to its new capital markets division and he also said that fee structures would be in line with what others are achieving.

Finally, on the subject of the traditional reinsurance market versus the third-party capital backed reinsurance market and where he saw Aspen trying to position itself, O’Kane commented; “If you’re not also offering this alternative type of capacity you will lose out on the emerging market aspect of this. Hiring Brian Tobben and the efforts we’re making is about positioning ourselves to be as effective in the alternative side as we have been over the years in the traditional side.”

It’s clear that Aspen sees the launch of its Aspen Capital Markets division as integral to the strategy of the business going forwards and that it will receive a significant amount of focus. The CEO’s comments suggest that it sees the growth of the alternative reinsurance capital markets as more than just a fad, rather as something it needs to be involved in or risk missing out. Similar thoughts are likely going through the minds of other reinsurance company CEO’s, who will also see this evolution of the reinsurance market as an opportunity not to be missed, and future launches are likely from other third-party capital savvy companies.

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