Hudson Structured raises capital for main & post-event ILS strategies

by Artemis on January 8, 2018

Hudson Structured Capital Management Ltd., the insurance-linked securities (ILS), reinsurance and transportation investment manager, has raised new capital for both its main ILS strategy and a structure established to take advantage of the post-catastrophe loss environment, lifting its ILS and reinsurance assets under management in the process to around $550 million.

Hudson Structured Capital Management was established by ex-Goldman Sachs partner and structured finance head Michael Millette and invests across the reinsurance spectrum, targeting mezzanine level returns for its investor base. The manager also operates a transportation investment strategy, which we have learned is now over $200 million of assets.

The firm has faced much more limited losses after the recent major catastrophe events in the second-half of 2017 compared to the majority of the ILS fund market, given its focus on accessing niche and unique investment opportunities, the Hudson Structured ILS strategies have shown a good level of resilience to the market-wide cat losses, we understand from an investor.

Hudson Structured has, like most ILS managers, been raising fresh capital to prepare for the reinsurance renewals in January 2018 as well as for a post-event strategy focused on catastrophe risk opportunities, that seeks to capitalise on the availability of higher rates and any market dislocation in the wake of the major hurricanes and other catastrophe losses of 2017.

The Hudson Structured Special Opportunities strategy is designed to act as a post-event ILS strategy, offering investors a chance to benefit from any market dislocation after the losses, with a focus on retrocessional reinsurance, spotting opportunities where reinsurance securities have been mispriced, and offering trapped capital solutions to those affected by the catastrophe events.

It appears that Hudson Structured worked with another investment manager to raise capital for the post-event strategy, First Republic Investment Management a subsidiary of First Republic Bank, Artemis learned.

First Republic has marketed a new strategy in the form of Altair Reinsurance Fund, LLC, which has been offered to its investor base.

This offering of the Altair Reinsurance Fund, LLC has raised $77.725 million of capital, according to SEC regulatory filings, which will now flow into the Hudson Structured’s Special Opportunities strategy, as the Altair Reinsurance Fund structure acts as a feeder into it.

So here, Hudson Structured is expanding its access to capital through a partnership with First Republic, enabling the bank to offer a reinsurance linked investment opportunity to its investment clients, while Hudson Structured benefits from a new source of capacity.

We understand that Hudson Structured has raised more capital for its post-event Special Opportunities strategy, with the initial target of $125 million said to have been surpassed — while total capital amount actually raised we understand represents much less than actual investor demand for Hudson’s strategy.

Additionally, Hudson Structured has raised more capital from third-party investors for its main reinsurance and ILS strategy, increasing the firm’s overall reinsurance-linked assets under management considerably, we’re told.

The main Hudson Structured strategy has a particularly broad mandate, investing across multiple lines of business (such as specialty, life and casualty business, while also allocating capital to distribution focused opportunities in areas such as insurance technology (insurtech)).

We’re told that overall Hudson Structured has lifted its assets under management, including committed capital, across both reinsurance and transportation investment strategies to roughly $765 million.

Of this, we understand that roughly $550 million will be invested in reinsurance and ILS opportunities, both through the established Hudson Structured reinsurance strategy and this new catastrophe focused post-event strategy.

When reached, Millette told Artemis that Hudson Structured is pleased with its broader investment strategy in reinsurance, as it has insulated the main strategy from the losses some ILS funds have faced. This strategy has a catastrophe risk allocation, but it is a much smaller percentage of the overall strategy than the majority of ILS investment opportunities.

“In light of the less than expected increase we’re seeing in pricing, I’m really happy with the fact we’re completing deals outside of property cat as well,” Millette said.

“Of course we had limited impacts from the losses, but actually our overall results took account of the fact we weren’t all in catastrophe risks,” he continued.

While the post-event structure is a very specific opportunity, taking advantage of the property catastrophe risk opportunity after recent loss events, Hudson Structured remains focused on doing more.

Millette said that the investment manager will continue its focus of looking more broadly at insurance and reinsurance linked returns, and said, “Major areas to be doing more right now include distribution, life & health and online opportunities.”

We understand that Hudson Structured continues to find opportunities beyond the January 2018 reinsurance renewals and as a result will be deploying more capital outside of the market cycle.

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