Amlin to develop synergies with Leadenhall Capital Partners

Amlin plc, the non-life insurance and reinsurance group, intends to continue developing synergies between itself and insurance-linked securities (ILS) and reinsurance-linked investments manager Leadenhall Capital Partners LLP, in which it holds a stake.

Leadenhall Capital Partners has increasingly featured in reporting from Amlin, as the alternative reinsurance capital and insurance-linked securities market has grown in size and stature and the contribution Leadenhall makes to Amlin’s results has increased too. In the latest set of results Amlin looks set to capitalise on the relationship as it realises the importance of having a strong ILS and reinsurance linked investment franchise.

In Amlin’s latest results, published this morning, the firm revealed that after a review of its strategy it intends to increase synergies across the Amlin business, with a key focus being on maximising the synergies between Leadenhall Capital Partners and its traditional reinsurance businesses.

Chairman of Amlin’s Board, Richard Davey, said that with the insurance and reinsurance market changing so rapidly, particularly in core areas of Amlin’s business such as specialty insurance and global catastrophe reinsurance, its investment in Leadenhall Capital positions it well to meet those challenges and to exploit opportunities.

CEO of Amlin Charles Philipps said that Leadenhall Capital Partners gives Amlin a “Valuable and growing foothold in the ‘convergence’ capital space.” Philipps revealed that Leadenhall Capital’s assets under management had grown significantly in 2013, from £528.3m (around $885m) at the start of the year, increasing by £437.7m ($735m) to finish 2013 with £966m (around $1.62 billion) under management.

Philipps said; “The complementary strengths of Leadenhall and our traditional reinsurance underwriting have enabled us to provide a unique client proposition. We can now offer key clients substantially more capacity in catastrophe reinsurance and other classes, such as terrorism insurance.”

Amlin has a 40% partnership share in Leadenhall Capital Partners and has an option available to it to increase that share, which is something that it intends to action this year. Philipps explained; “We will continue developing the synergies between Leadenhall Capital Partners and our reinsurance business. We currently have a 40% partnership share and we expect to increase this either partly or fully, during 2014.”

Amlin clearly sees the vital importance of a strong position in ILS and the need to manage third-party reinsurance capital, giving it a lower cost source of underwriting capital to augment its equity backed underwriting capacity. Giving clients choice, larger lines and the flexibility to use fully-collateralized reinsurance cover has clearly risen up the agenda at Amlin over the last twelve months.

Amlin wants to grow Leadenhall Capital Partners, said Philipps; “In the longer term, our strategic goal for Leadenhall is to be one of the top-three global fund managers in insurance-linked securities.”

Third-party capital management is core to Amlin’s strategies for growth in reinsurance now, according to Philipps and the CEO acknowledges that the units importance to Amlin will grow in the future. Philipps said; “Over time, we expect that Leadenhall’s growth, and its ability to supplement Amlin’s reinsurance capacity, will help us grow our share of the global reinsurance market.”

Amlin’s investment in Leadenhall Capital Partners, which averaged £65.7m in 2013, returned it £4.1m during the year, equivalent to 6.2%. That compares to 2012 figures of an investment of £72.1m which returned £4.4m or 6.1%. In total Leadenhall contributed £4.4m to Amlin’s profit before tax in 2013 from its 40% share and facilitation fees earned by Amlin.

Amlin acknowledges that the reinsurance trading environment is becoming more difficult but sees Leadenhall as a potential antidote, enabling it to navigate the challenging reinsurance market more effectively. The firm believes that recent growth in capital markets activity in reinsurance is complemented by its investment in Leadenhall Capital Partners.

The relationship with Leadenhall is leading to enhanced access to reinsurance business for Amlin, an important reason for group’s like Amlin to build capital markets units. In the future having the breadth of capital sources will be vital to enable reinsurers to compete across the market and against dedicated ILS and capital markets players.

The firms results report states; “The combination of Amlin’s traditional reinsurance offering with that of Leadenhall Capital Partners is proving attractive to clients and resulting in preferential signings, access to business which is not available in the open market and, on some business, better pricing than in the open market.”

Amlin has always had the option to deepen its relationship with Leadenhall Capital Partners even further, through its option that would allow either the Amlin Group or partnership management to purchase the remaining shares and voting rights. It will probably wait to see how the market reacts to this prospect and client needs, and reaction to the possibility of Leadenhall becoming 100% Amlin, will drive its decision here.

It’s clear that Amlin is placing an ever-increasing level of importance on the Leadenhall Capital relationship. The discussion of ILS and Leadenhall as part of its core strategy has increased dramatically over the last year, which is a further sign of the growing importance of ILS and third-party capital management as part of an insurance and reinsurance group strategy.