Aspen cedes more risk to capital markets unit

Bermudian insurance and reinsurance firm, Aspen Insurance Holdings Limited, ceded substantially more risk across its operations in the second-quarter of 2017, as it continues to lay off more risk to its capital markets unit.

The re/insurer’s second-quarter 2017 results show an increase in gross written premiums (GWP) of 2.5% to $822.1 million, compared with $801.7 million in the second-quarter of last year. The firm reported that its net written premiums (NWP) declined by roughly 20% from $724.8 million last year, to $578.7 million in Q2 2017.

By segment, insurance NWP declined by 29.9% to $293.2 million, while the reinsurance segment NWP fell by 6.9% to $285.5 million, “primarily due to increased cessions to Aspen Capital Markets,” the firm explained in its Q2 and H1 2017 earnings release.

The above shows that Aspen ceded a significantly higher volume of risk in Q2 2017 when compared with last year, ceding $243.3 million of premiums in Q2 2017 compared with $76.9 million a year earlier, an increase of roughly 216%.

For the first-six months of the year the story is similar, with GWP increasing from $1.777 billion in 2016 to $1.820 billion as at June 30^th, 2017. NWP declined from $1.524 billion in the first-half of last year, to $1.264 billion in H1 2017.

Premiums ceded during the first-half of this year increased by approximately 120% to $555.2 million, compared with $252.9 million a year earlier.

Around this time last year Aspen explained that it would make greater use of the availability of efficient reinsurance protection, highlighting its use of the capital markets to reduce its probable maximum losses (PMLs).

One year later and it appears the re/insurer is maintaining this approach, ceding more of its reinsurance business to its capital markets unit, which provides the team and the third-party investors that participate in their vehicles, with increased cessions from Aspen. Which in turn provides Aspen Capital Markets with an opportunity to raise more capital from investors.

Market conditions remain extremely challenging, and it could be that Aspen is taking advantage of the softening and favourable buyers’ reinsurance market conditions to off-load more and more of its risk to traditional players, and third-party investors.

Aspen announced earlier this year that it was expanding its presence in the capital markets with the launch of Peregrine Re, a special purpose reinsurer that operates under its capital markets unit, like Silverton Re.

The use of both Silverton Re and Peregrine Re and the additional collateralized reinsurance transactions that Aspen Capital Markets works with third-party investors on, assist Aspen’s efforts to reduce its exposure to peak catastrophe events on a managed basis.

Alternative reinsurance capital continues to increase its presence and claim a larger slice of the overall reinsurance market pie, and Aspen clearly sees the benefits of ceding more risk to its capital markets unit and utilizing both traditional and third-party reinsurance and, it will be interesting to see if this trend continues as the softening reinsurance cycle persists.