Collateralised and insurance-linked securities (ILS) backed capacity providers played a key role in the Florida Hurricane Catastrophe Fund’s (FHCF) 2015 purchase of $1 billion of private reinsurance cover, which Artemis has details of today.
The $1 billion reinsurance purchase by the FHCF in 2015 is the first time it has turned to the private risk transfer markets for protection, bringing new premium to the global reinsurance market at a time when reinsurers are well capitalised and looking for growth opportunities.
That has enabled the FHCF to put together a globally diversified $1 billion reinsurance program, featuring many of the world’s largest reinsurers as well as third-party reinsurance capital through ILS and alternative capital backed companies and ventures.
The FHCF has disclosed its list of reinsurance capital providers to Artemis and we can reveal that a number of leading ILS managers and third-party reinsurance capital providers have played a key role.
FHCF COO Jack Nicholson spoke with Artemis and explained his pleasure at the reception the Fund received from the reinsurance market; “We are very pleased with the program and all the hard work done by our broker Aon Benfield, as well as our SBA legal team. The response from the market was remarkable given this was a first time entry.”
Key to the successful placement for the FHCF was the market’s acceptance of its terms and also the resulting pricing. On both factors the market stepped up and supported the FHCF’s reinsurance needs.
“Many reinsurers stepped up not only regarding the pricing, but also regarding our desired terms and conditions, which we felt were critical to the success of the placement,” Nicholson explained.
Nicholson noted that the panel of reinsurers was well-diversified, both in terms of global location and also forms of capital. In total 30 reinsurers participated in the FHCF 2015 reinsurance program purchase, with two being fully-collateralised reinsurers operated by ILS managers, while another ILS manager participated via a Lloyd’s vehicle.
More on the collateralised, ILS and third-party capital participation in the program shortly. While the program is well-diversified, two companies provided $462.5m of the total, or 46.25% of the reinsurance capacity purchased.
Those two reinsurers were Renaissance Re, which took $262.5m of the program, while Swiss Re took $200m through Swiss Reinsurance America Corporation.
Renaissance Re also participated through its joint-venture third-party capital funded reinsurer DaVinci Re, which took $87.5m of the FHCF program. DaVinci acts as a type of sidecar reinsurer, with joint participation between RenRe and its third-party investors.
On the collateralised side, there was participation from Validus’ ILS unit AlphaCat Managers, which took $31m through AlphaCat Reinsurance Ltd.
Also participating on a collateralised basis was a Bermudian reinsurance vehicle named Collateralised Re Ltd., which Artemis understands to be operated by the LGT ILS Partners insurance-linked strategies team. Collateralised Re Ltd. took $75m of the total FHCF program.
The final ILS manager to participate in the FHCF program was the world’s largest, Nephila Capital. Nephila participated through a company called Nautical Management which underwrote on behalf of Nephila’s Lloyd’s of London syndicate 2357. Through this participation Nephila took $50m of the program.
So in total $156m or 15.6% was taken by the three ILS managers, AlphaCat Managers, LGT ILS Partners and Nephila Capital, and will ultimately be collateralised by the managers funds in some way.
Another $87.5m (8.75%) which will have drawn on third-party capital market investors through DaVinci Re. So as much as $243.5m, or 24.4%, can be traced back to ILS and third-party capital vehicles of some description.
“We were fortunate to have a number of reinsurers on the transaction,” Nicholson explained, “The risk was truly spread over the globe with participation from the United States, Bermuda, Europe, Asia/Pacific rim, the United Kingdom including 10 Lloyds syndicates.”
Of course the security of the panel of reinsurance capital providers is important to the FHCF. Nicholson commented on this; ” All the traditional reinsurers were A.M. Best rated A or better; and of course, the collateralized programs will be secured with assets placed in trusts.”
The fact that ILS and third-party capital vehicles took such a large chunk of the FHCF reinsurance program is no surprise, given the Florida location and the appetite for risk and efficiency of ILS capital in that peak peril zone.
It should also be noted that it is possible that other ILS players have participated through parent or partner rated vehicles, that’s impossible to tell with the detail on the program we have.
The FHCF is delighted with the results of its first foray into the global reinsurance market. The response it received was positive, which isn’t surprising given the appetite for new underwriting opportunities in Florida.
Nicholson explained; “Overall, we felt that reinsurance market was very competitive and we are extremely pleased with the results.”
Of course, even at $1 billion, the program is not sufficiently large to really soak up much of the excess capital and appetite, but it may have given some of the ILS managers an opportunity to accept a little more capital from their investors, given it was a new opportunity for them.
We have a full list of the reinsurers and third-party capital reinsurance vehicles that participated, including their line sizes and participation percentages in the FHCF 2015 reinsurance program below.
Note there are some names that seem conspicuously absent, including some of the world’s largest reinsurance firms, particularly the big European companies. For some, the prospect of more peak Florida wind exposure may have been too much to be able to meet the FHCF’s price target.
The program is a great example of the increasing influence of ILS and third-party reinsurance capital in the world’s largest reinsurance programs. As ILS continues to expand it is to be expected that more of the world’s major programs will see ILS participation increase.
The line sizes put out by ILS and collateralised players, particularly versus those put out by Lloyd’s syndicates and some other reinsurers who you might have expected to take larger shares, are significant.
ILS capital continues to demonstrate its ability to take on peak risks at very efficient rates for cedants, resulting in third-party capital taking increasingly large shares of these big reinsurance programs.
It also continues to demonstrate the important role it plays in helping U.S. risk pools or re/insurers of last resort to improve their protection and to reduce reliance on taxpayer subsidy or assessment.
United States:
| Reinsurer | Participation % | Line size | |
|---|---|---|---|
 |
American Standard Insurance Company of Wisconsin | 1.5% | $15m |
|
Everest Reinsurance Company | 1% | $10m |
|
Swiss Reinsurance America Corporation | 20% | $200m |
Bermuda:
| Reinsurer | Participation % | Line size | |
|---|---|---|---|
|
ACE Tempest Reinsurance Ltd. | 1% | $10m |
|
AlphaCat Reinsurance Ltd. | 3.1% | $31m |
|
Amlin AG, Switzerland, Bermuda Branch | 0.75% | $7.5m |
|
Arch Reinsurance | 5% | $50m |
|
Argo Re Ltd. | 1% | $10m |
|
Collateralised Re Ltd. | 7.5% | $75m |
|
DaVinci Reinsurance Ltd. | 8.75% | $87.5m |
|
Hiscox Insurance Company (Bermuda) Limited | 1.5% | $15m |
|
Markel Bermuda Limited | 1% | $10m |
|
Renaissance Reinsurance, Ltd. | 26.25% | $262.5m |
|
Validus Reinsurance, Ltd. | 4.15% | $41.5m |
|
XL Re Limited | 0.75% | $7.5m |
United Kingdom / Lloyd’s of London:
| Reinsurer | Participation % | Line size | |
|---|---|---|---|
|
Syndicate No. 0033 Hiscox (HIS) | 0.5% | $5m |
|
Syndicate No. 0609 Atrium Underwriting (AUW) | 0.15% | $1.5m |
|
Syndicate No. 0727 S.A. Meacock and Others (SAM) | 0.15% | $1.5m |
|
Syndicate No. 0958 Canopius (CNP) | 0.28% | $2.8m |
|
Syndicate No. 1274 Antares (AUL) | 0.15% | $1.5m |
|
Syndicate No. 1458 RenRe (RNR) | 2.5% | $25m |
|
Syndicate No. 1910 Ariel (ARE) | 1% | $10m |
|
Syndicate No. 2001 Amlin Underwriting Limited (AML) | 2.25% | $22.5m |
|
Nautical Management on behalf of Syndicate 2357 | 5% | $50m |
|
Syndicate No. 2791 MAP Underwriting (MAP) | 0.75% | $7.5m |
|
Syndicate No. 4444 Canopius (CNP) | 1.12% | $11.2m |
Europe:
| Reinsurer | Participation % | Line size | |
|---|---|---|---|
|
Satec srl/New Reinsurance Company Ltd. | 0.15% | $1.5m |
Asia Pacific:
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| Reinsurer | Participation % | Line size | |
|---|---|---|---|
|
Korean Reinsurance Company | 1% | $10m |
|
Sompo Japan Nipponkoa Insurance Inc. | 1% | $10m |
|
Taiping Reinsurance Co., Ltd. | 0.75% | $7.5m |
