XL Catlin to expand alternative reinsurance capital abilities: Hendrick

Alternative reinsurance capital and insurance-linked securities (ILS) is to feature as one of five key principles to be followed by the reinsurance division at newly joined XL Catlin, according to CEO of reinsurance Greg Hendrick.

In an email sent to partners of XL Catlin yesterday, which Artemis has seen a copy of, Hendrick describes the five key principles that the firm will follow from its launch and as it evolves to changing market conditions.

The five principles are listed as; underwriting and analytics, client relationships, alternative capital, operational excellence and innovation.

It’s no surprise to see alternative capital cited as a key principle for the newly joined together XL Catlin. As the firm begins to underwrite as a joined and larger entity, the opportunities it has to leverage existing ILS and third-party capital facilities will increase.

The added scale that a larger pool of third-party capital will provide, as well as a broader array of market-facing alternative capital facilities, will all help XL Catlin’s reinsurance unit to become more relevant to its clients and to offer a capital agnostic underwriting approach.

Hendrick explained in the email, on alternative capital and the desire to grow that practice; “Both XL and Catlin currently have activities in this area and we will expand our ability to deliver the appropriate capital for each class of risk we assume.”

XL already has its interest in dedicated insurance-linked securities (ILS) manager, New Ocean Capital Management. Catlin, meanwhile, has a number of special purpose syndicates at Lloyd’s of London, where it leverages third-party capital for underwriting Lloyd’s business.

Combined that makes an interesting and diverse alternative reinsurance capital play, with ILS funds managed by New Ocean Capital, and the special purpose syndicates providing a way for XL Catlin to help institutional investors to access the returns of Lloyd’s specialty re/insurance business.

When the acquisition of Catlin by XL was announced it listed one of the key opportunities that the combination presented as “the need to harness alternative capital opportunities.”

XL also said that the enlarged property catastrophe reinsurance book that the combined firm would underwrite would serve to “Significantly increase its attractiveness and flexibility to third party capital providers.”

CEO Mike McGavick said that XL Catlin would become a “perfect partner for investors” in the ILS and third-party capital space. Placing third-party or alternative capital as a key principle clearly shows that XL Catlin intends to make the most of the attraction it will have for investors looking to access reinsurance business.

McGavick also said in a recent article that XL Catlin hopes to be “the preferred partner of the alternative capital providers” showing that this will be a real focus for the firm.

Delivering the appropriate capital for each class of risk assumed. Expanding on this ability will mean that XL Catlin can benefit from more efficient capital and capacity provided by its alternative and third-party capital activities, while its balance-sheet can focus on assuming risks which meet its own cost-of-capital requirements.

It will be interesting to see how XL Catlin develops the ILS and alternative reinsurance capital business and how much it looks to grow the third-party investor capital it now has under management.

Also read:

– XL CIO Street to assist alternative capital innovation post Catlin deal.

– XL Catlin deal a sign of how bad the reinsurance market really is: KBW.

– Combined XL – Catlin a “perfect partner” for third-party capital: McGavick.

– XL buys Catlin for £2.79B. Makes XL more attractive to third-party capital.