Fronting and program service insurance specialist State National Companies, which provides fronting and program services to insurance-linked investment fund manager Nephila Capital, has again grown its income from fees earned as program premiums increased in the first-quarter of 2017.
State National’s Program Services unit has been steadily growing its business and adding new companies it fronts and manages programs for, with two new traditional re/insurers added in recent weeks.
It’s program with Nephila Capital is one of its most significant, as it helps the ILS manager channel its reinsurance risk capital closer to the source of primary risks, by backing the business underwritten through the program and that State National fronts for.
Ceding fees earned by State National through its Program Services unit were up by 9% in Q1 of 2017 to $17.6 million (up from $16.2m a year earlier), which helped the company grow its overall revenues for the first-quarter by 18%.
The growth in revenues from program services ceding fees was driven by increases from both new and existing clients, according to State National.
Income before tax from the program business segment reached $13.5 million, up from $12.6 million in the prior year quarter.
State National continues to believe that “The increased role of capital market alternatives to reinsurance, including the capitalization of hedge fund-backed reinsurers and the availability of capital in the non-U.S. reinsurance market, is driving demand for our Program Services, as these firms typically do not have direct access to the U.S. insurance market”
This trend is being seen more widely now, as other ILS fund managers look to partnerships with re/insurers or brokers in order to access primary portfolios of risk more directly, efficiently and outside of the reinsurance renewal cycle.
The fee driven insurance business that State National has built perhaps provides a glimpse of the future for other re/insurers who are struggling with lower pricing and unable to make their cost-of-capital.
Leveraging a broad underwriting reach and a rated platform to help third-party capital investors access risk-linked returns could be a future strategy that many more companies need to analyse and pursue, as their own underwriting capacity fails to generate the returns it used to.
State National has an impressive headstart on a business model that is expected to become much more widespread.
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