Credit Suisse ILS backed reinsurers affirmed, but catastrophes take toll

Both of the rated reinsurance vehicles that are managed by and backed by capital from the Credit Suisse Insurance Linked Strategies Ltd. team have had their ratings affirmed by A.M. Best, despite suffering losses from the catastrophe activity through 2018.

Kelvin Re, a rated reinsurance company backed by investments from the Abu Dhabi Investment Council, is projected to underwrite approximately $200 million of premiums in 2018, rating agency A.M. Best said, with the combined ratio forecast to fall between between 95% and 100%, so much improved on 2017’s 124%.

Humboldt Re meanwhile, which is backed solely by capital from the insurance-linked securities (ILS) funds managed by Credit Suisse Asset Management (CSAM), is forecast to underwrite over $240 million of premiums but is expected to fall to an underwriting loss, with a combined ratio of more than 105%, although that is again much better than 2017’s result.

Both of the reinsurance vehicles are domiciled in Guernsey and provide rated reinsurance paper to support the underwriting and capital deployment of the CSAM ILS funds and one of its investors.

A.M. Best noted that with Kelvin Re, the reinsurer managed a profit despite suffering hits from the 2018 catastrophe events and ongoing loss creep from the 2017 hurricanes as well.

The rating agency noted the flexible retrocession program that Kelvin Re has in place, as well as its strong capital status, with this capital strength expected to be maintained as the reinsurer continues to grow its underwriting book, which is globally diversified but weighted towards catastrophe risks.

Kelvin Re invests some of is assets in hedge fund strategies, but A.M. Best said that specialist investment managers accomplish this for the firm.

For Humboldt Re, A.M. Best noted the also flexible retrocession but conservative investments strategy, which should enable the reinsurer to maintain balance sheet strength as it grows.

Underwriting mostly short-tail property and specialty lines reinsurance, with a heavy catastrophe bias, Humboldt Re derives all of its underwriting business from the Credit Suisse Insurance-Linked Strategies team, a $9 billion ILS fund manager.

Humboldt Re was hit by losses from catastrophes in the United States and Japan during 2018, which is expected to drive it to an underwriting loss.

These reinsurance vehicles will assist Credit Suisse and the investors backing the rated companies at the upcoming renewals as they are not as affected by trapped collateral as a directly collateralised reinsurance underwriting strategy.

The vehicles offer flexibility, an element of financial leverage, as well as the rated paper that is so necessary for underwriting certain business and territories around the world.

Both Kelvin Re and Humboldt Re had their Financial Strength Rating of A- (Excellent) and Long-Term Issuer Credit Rating of “a-” affirmed with stable outlooks by A.M. Best.

It’s no surprise both were hit relatively hard by catastrophes and loss creep, given the rest of the ILS market has also been impacted by these losses.