Aspen Capital Markets a growth area. Third-party funds now $135m

Chris O’Kane, CEO of global insurance and reinsurance firm Aspen, said that the company’s alternative capital management and insurance-linked securities (ILS) unit Aspen Capital Markets is a growth area and its third-party reinsurance capital has risen to $135m.

Aspen’s quarterly results were announced last week and during the firm’s earnings call O’Kane said that one of its areas of investment is the Aspen Capital Markets unit and that this is contributing to Aspen’s; “Profitable premium growth across diversified lines.”

The Capital Markets unit is one of the initiatives which together are helping Aspen to grow by taking on exposures with limited correlation to the existing Aspen book, allowing the firm to be more efficient with its capital and contributing to increased return on equity.

O’Kane explained; “There are many new entrants into the catastrophe reinsurance business with differing risk appetites and costs of capital. Through Aspen Capital Markets and increased use of retrocession protection of much of our growth, especially in property catastrophe reinsurance, is being redistributed.”

By redistributing its growth, using initiatives such as its collateralized reinsurance sidecar Silverton Re, Aspen has managed to grow but with broadly unchanged and better balance net retention, O’Kane said.

Third-party capital is clearly beginning to show its worth at Aspen and O’Kane discussed how using it on both sides, by managing it at Aspen Capital Markets with an increase in third-party assets now to $135m, as well as using it for its own protection, is helping the firm manage its exposures.

“We continue to leverage our third-party relationships with Aspen Capital Markets. We’ve now raised $135 million of third-party capital. As you saw at the 1/1 renewals we were able to utilize third-party capital as well as increased retrocession to grow our gross exposures in property catastrophe reinsurance, while keeping our net exposures fairly flat,” O’Kane said.

As with other reinsurers, having a capital markets unit is helping Aspen to write larger lines, for the benefit of itself and its third-party investors. O’Kane continued; “Through ACM we have developed a symbiotic relationship with third-party capital, whereby we can utilize ACM to enable us to offer increased line sizes to our clients, while providing our investors with enhanced returns.”

Aspen Capital Markets is one of the firms key profitable growth prospects in its reinsurance division, O’Kane said, alongside expansion in U.S. regional reinsurance, Latin America and Asia Pacific.

In terms of the growth, O’Kane said that writing more risk to third-party capital through Aspen Capital Markets is one of the potential areas of focus and that, depending on the direction of property catastrophe rates, it might retain less of that risk itself and provide it to its investors whose risk appetites and costs of capital make it more efficient for them to assume it.

During the course of 2014 Aspen has been taking larger gross positions in reinsurance and using Aspen Capital Markets to redistribute some of that risk. At the same time Aspen has been using more retrocession as well. So the firm is often taking larger gross lines at the moment at reinsurance renewals but in channeling some of that to third-party capital or to retro capacity the net position is not growing.

O’Kane would not be drawn on the direction of the firms gross reinsurance exposures, as that will depend on the rate environment and Aspen’s appetite to assume and hold risk. This will be a function of third-party capital and it’s appetite as well as the availability of retrocession, O’Kane explained.

So Aspen continues to grow, and rely more on, its third-party reinsurance capital unit Aspen Capital Markets. Now up to $135m of third-party capital, an increase from $100m at the beginning of the year, the contribution the unit makes will also be increasing.

We’d expect Aspen to continue this strategy, of leveraging its new symbiotic relationship with third-party capital strategically to share the risks it underwrites with investors when their risk appetite and cost of capital fits. By writing larger lines Aspen can become a more valued reinsurance partner and third-party capital looks to be part of its strategy as it continues to pursue growth.

Also read from last week: Aspen’s Silverton Re reinsurance sidecar sees 12% performance YTD.