Aspen grows book, but cedes more of it to retro & third-party capital

by Artemis on May 4, 2018

Bermudian insurance and reinsurance group Aspen Insurance Holdings Limited grew its book at the January 2018 renewals, with CEO Chris O’Kane saying it was the first quarter in the firms history when it underwrote more than $1 billion of premium, but a significant proportion was actually ceded to retrocession and third-party capital it appears.

Aspen, like so many others of the Bermudian players, has taken advantage of the improved rate environment to grow its book in the first-quarter of 2018.

But also like so many other insurance and reinsurance firms, while rates were improved they weren’t improved enough for Aspen to want to hold onto all of the risk itself, hence the company leveraged the appetite of retrocession partners, as well as third-party investors through its Aspen Capital Markets division to offload a significant proportion of the risk.

Aspen CEO O’Kane commented on the first-quarter results, saying, “The first quarter of 2018 was the first in Aspen’s history in which we wrote more than a billion dollars of premium. Our strong results include gross written premium growth across both Aspen Re and Aspen Insurance as a result of our targeted growth strategy.”

In the quarter, Aspen underwrote almost $1.12 billion of premiums across its business, an increase of 11.9% compared with Q1 2017.

In insurance, gross written premiums of $493.3 million was up 14% compared with the prior year. While in reinsurance, gross written premiums of $623.5 million was up 10.3% on Q1 2017, with growth in property catastrophe risks driven by rate improvements Aspen found at the renewals.

In fact it was in property catastrophe reinsurance and specialty reinsurance that much of the growth was seen, but a decent share of the catastrophe risk growth has now been ceded on, to retrocession partners and third-party capital.

Looking at Aspen’s overall premiums written to ceded, the proportion ceded out increased significantly this year. This is due to a de-consolidation of the Aspen Capital Markets unit, which will now be reported on as any other third-party source of reinsurance would be.

In Q1 2017, Aspen ceded roughly 31% of its gross premiums written, but in Q1 2018 while the amount of gross premiums written increased by almost 12%, the amount ceded rose to over 43%, reflecting the significant use of retrocession and the ceding of risk to the Aspen Capital Markets unit vehicles in the quarter.

This would be aligned with other reinsurers, such as Renaissance Re which ceded more risks to third-party capital in the first-quarter, after writing more catastrophe business.

The same has been seen at other re/insurers in the current results season, as companies took advantage of rates that were improved at the renewals so far in 2018, but perhaps felt the rates were still not sufficient to warrant holding much of the risk on their own paper.

Aspen has returned to the catastrophe bond market for the first time since 2007 this year, with its $225 million Kendall Re Ltd. transaction. It’s likely this has helped the re/insurer to moderate the impact of underwriting more catastrophe premiums on the exposure of its overall book.

Similarly, Aspen, like others, is utilising its capital markets unit as a way to manage its own exposure, while putting its underwriting expertise to work in areas of the market where its own capital and balance-sheet is no longer the most efficient home for the risk.

This trend, of re/insurers writing more business when rates are attractive enough, but more and more of the peak catastrophe exposures flowing through to third-party capital and sources of retrocession, is one that has been accelerating along with the increasing pressure they have faced in the market.

At the all-important Florida reinsurance renewals in June, we’re likely to see traditional reinsurers deploying even more third-party capital, as they look to maintain a share in that market and not relinquish their stakes in the county to dedicated ILS fund managers and collateralized vehicles.

Aspen is also considered up for sale, or at least considering its options. The use of third-party capital and retro judiciously to control exposures at a time when the book could be under intense scrutiny, could also be a sound part of its sale process strategy.

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