Catlin doubles contribution from third-party reinsurance capital

Catlin, the global specialty property casualty insurance and reinsurance company with a strong base at the Lloyd’s market in London, has nearly doubled the contribution it receives from third-party capital arrangements in the last year.

Catlin has taken a different route into third-party reinsurance capital than its peers, choosing not to launch a specific unit focused on managing investor capital in ILS style funds and sidecars, preferring instead to focus on leveraging the structures already available to it at Lloyd’s.

The firm runs a number of third-party capital backed special purpose syndicates at Lloyd’s, which largely provide whole-account quota share reinsurance to the firms Catlin Syndicate 2003. With these structures, Catlin can effectively share its underwriting experience with third-party investors, in a very similar way to a sidecar, while giving third-party capital direct access to the Lloyd’s of London insurance market.

This strategy, which was launched in 2012 and then expanded in 2013 and 2014, is clearly proving successful and attractive to the third-party investors Catlin has built relationships. The firm also launched a new collateralized reinsurance sidecar type vehicle, again funded by third-parties but this time sitting outside Lloyd’s earlier this year, showing that it intends to make the most of investor interest in reinsurance linked investments.

Catlin termed this newer structure a Portfolio Participation Vehicle (‘PPV’), and through it gives third-party investor capital a way to access its book of business that is underwritten outside the Lloyd’s market for the first time.

Between the special purpose syndicates and the PPV Catlin had raised around $300m from third-party investors for the 2014 underwriting year, according to comments Chief Executive Stephen Catlin made in February.

The contribution that these third-party activities are making to Catlin’s results is growing as well, with the firm reporting $25m of commissions and fees earned in the first-half of 2014. That’s almost double the $13m it earned in the first-half of 2013 and nearly as much as it’s full-year figure of $28m from the full-year 2013. In 2012 the figure was $14m, showing that Catlin’s third-party capital business is growing nicely.

Third-party capital investors are now able to gain access to both Catlin’s syndicate and insurance or reinsurance operations, participating in the returns of business written at Lloyd’s as well as outside that market. This gives Catlin perhaps a broader offering for investors, encompassing more types of risk than many other third-party reinsurance capital activities.

During the Catlin Q2 earnings call, Stephen Catlin said that he would expect to see a similar number in terms of fees and commissions from the third-party capital business in the second half of this year. The numbers should continue to grow going forwards as well, as long as the business underwritten has been profitable, as the lag on commissions takes a while to catch up to the increasing third-party assets under management.

It’s encouraging to see Catlin trying and succeeding with something a little different to the normal re/insurer third-party or ILS capital play. The addition of third-party funds into Catlin’s capital structure gives it flexibility, increase its strategic options and provide a source of low-cost underwriting capital. Those benefits alongside the increasing income from the initiatives should see Catlin continue to grow this part of its business.