Capital markets a major area of investment for Aspen

by Artemis on April 25, 2014

Global insurance and reinsurance firm Aspen continued to grow the assets under management at its alternative capital management and insurance-linked securities (ILS) focused unit Aspen Capital Markets during the first-quarter.

While Aspen Insurance Holdings Ltd. is the focus of a takeover attempt by John Charman’s Endurance, Aspen held its first-quarter earnings conference call yesterday and discussed where it sees its major opportunities for growth and, of course, also the subject of who might be a good partner for the firm.

According to Aspen, the Aspen Capital Markets unit is one of the three key areas of strategic investment that is has made in the reinsurance side of its business.

CEO Chris O’Kane commented; “The industry has been changing and with the flow of capital into the reinsurance market, we modified our strategy to capitalise on new opportunities.”

Aspen launched its Capital Markets unit in April 2013, hiring experienced ILS focused reinsurance executive Brian Tobben from PartnerRe as its managing director.

Since then the firm has launched a fully-collateralized reinsurance sidecar, Silverton Re, in December 2013, providing it with a dedicated vehicle for managing third-party capital, enabling it to pass on some risk from the Aspen business and deploy larger lines leveraging a lower-cost source of capital.

Aspen clearly see the alternative reinsurance capital side of the market as a core addition to its business. O’Kane commented; “Alternative capital is here to stake and we’re utilizing that capital to better serve our clients.”

O’Kane gave some colour on Aspens third-party capital activities during the first quarter; “At the January 1st renewals we were able to write larger lines using Silverton Re and transferring some of our property catastrophe risks to third-party capital enabling us to efficiently manage our risk profile across the balance sheet. This combined with increased retrocession protection allows us to increase gross exposure to our tier 1 perils while keeping net exposure as a percentage of capital relatively flat.”

Aspen aim to continue growing the capital under management at Aspen Capital Markets and added some in the first-quarter, according to O’Kane. As the firm increases its third-party reinsurance capital it will increasingly be able to leverage it within underwriting to offer optimised products to clients, while also benefiting from the income from writing larger lines and the management fees it can earn.

O’Kane explained; “We will continue to grow Aspen capital markets. In the first quarter we increased the capital under management by another 20 million to reach a total of $125 million.”

We believe that Aspen Capital Markets third-party capital under management is closer to the $100m mark, with the remainder being Aspen’s own capital within the alternative reinsurance structures it operates.

O’Kane hailed the work done to date by the Aspen Capital Markets team, saying; “I would note that Brian Tobben, who leads this team, has just passed his one year mark at Aspen. It has been a really impressive first year.”

Commenting on the competitive nature of the reinsurance market at recent renewals, O’Kane highlighted the benefits of having a source of third-party capital under management; “Our offerings have been enhanced by the success of our growing Aspen Capital Markets group, which supports our ability to offer more substantial capacity to our clients in profitable business while maintaining our risk profile.”

O’Kane said that looking ahead to the mid-year renewals a 10% decline in Florida property rates was likely, perhaps more, this is the one area of the market he felt down-beat about. But with Aspen Capital Markets O’Kane said that Aspen can represent investors with a lot of capital who may be a little more competitive on pricing and Aspen can underwrite for them, helping them to win business.

O’Kane also said that within the firms first-quarter results gross written premiums, $30m was sourced from Aspen Capital Markets business, however the firm is largely taking management fees for that hence there is a difference in gross to net compared to business written on Aspen’s own capital base.

On the topic of the offer from Endurance, which Aspen calls unsolicited, undervalues its stock and not a good strategic or cultural fit. O’Kane said if the right deal were on the table he would want it to be from a partner with global operations, who could help Aspen move into areas it is not already in and lines of business where it seeks growth.

Any merger would have to add incremental value to the Aspen stock and provide it with clear sources of growth and opportunity. O’Kane also doesn’t think that now is the right time as he believes that Aspen is just on the cusp of realising some of its growth ambitions, particularly in insurance, which would make it even more attractive to potential suitors a year or so down the line.

O’Kane clearly feels that Aspen is not for sale right now and that the firm is making good progress alone, which the results seem to support. Aspen Capital Markets, as a key strategic initiative at Aspen, is beginning to provide good results as well and we can expect Aspen to continue to invest in it and grow the units third-party capital under management.

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