Asset manager-backed Crosswinds Re signs deal with TransRe

Canadian asset manager Crosswinds Holdings Inc. continues to demonstrate its the appeal that reinsurance linked returns have for investors of all kinds, signing an agreement between its Crosswinds Re reinsurer and established market player TransRe.

Crosswinds, which is a publicly traded private equity investor and asset manager, set up Cayman Islands domiciled Crosswinds Re as a Class B(iii) reinsurer back in September 2016, as it looked to set up as a specialty reinsurer initially focused on the Florida property and casualty market, as part of Crosswinds’ integrated insurance, reinsurance and asset management structure.

Crosswinds looks to bring float from the reinsurance sector to invest in its asset management strategies, in a total-return type manner, while also bringing private equity capital to the funding of the Crosswinds Re entity. It’s another interesting twist on the asset manager backed reinsurance play and underscores that the sector is increasingly attractive to a range of investors.

However just because a sector is attractive does not necessarily mean its returns are.

Crosswinds Re was capitalised with $2 million for the mid-year reinsurance renewals, but according to its asset manager parent no business was underwritten, as “the available opportunities did not meet its risk-return criteria.”

Crosswinds had been targeting the Florida market at the renewals, the location where rates have continued to decline the most in reinsurance markets and also the market where ILS funds have the largest market share and can be most competitive.

Crosswinds Re will continue to look for any attractive opportunities that emerge during the wind season, the company said. But in the meantime the more active asset management side of the business takes over, and the company will look for any attractive opportunities to invest the funds allocated for its reinsurance activities.

Crosswinds’ CEO, Colin King, said; “We are excited that Crosswinds Re has been fully established as part of its proof of concept.  While we had hoped to write some business this season, we are opportunistically exploring deploying capital and will pass on business when our risk-return targets cannot be achieved.  The 2017 renewal rates we have seen to date did not satisfy our risk adjusted return targets.”

Demonstrating its desire to become a larger player in the reinsurance market, Crosswinds and Crosswinds Re have entered into an underwriting services agreement with established company Transatlantic Reinsurance (TransRe).

Under this agreement Trans Re will act as a strategic advisor to Crosswinds Re, providing information on structuring, pricing, risk assessment and market conditions for the reinsurance opportunities assessed by the company.

The agreement will run for 5 years with an option to renew for successive 2 year terms.  Trans Re will receive a management fee for its work, calculated as 2% of the underwriting capital deployed by Crosswinds Re in a year.

For 2017, TransRe is entitled to a stand by fee of US$50,000 for a year where Crosswinds Re does not write any business and is also entitled to an incentive fee of 10% of the gross increase in the value of Crosswinds Re itself if a liquidity event occurred, an attractive addition to the deal terms for the reinsurer.

It’s an interesting arrangement, as it shows another way that a traditional reinsurer (TransRe) can work alongside one less traditional (Crosswinds) while leveraging its expertise to earn fee income.

Crosswinds should be an efficient reinsurer, given its more active investing and total-return business model and backers, which also means it could be a platform that TransRe would appreciate helping to grow into some of the most competitive areas of the reinsurance marketplace.

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