Lancashire Capital Management launch shows firms third-party capital ambitions

Lancashire Holdings, a global provider of specialty insurance and reinsurance products, is launching a new brand which will lead its efforts in third-party capital management and give it a platform it can expand from to leverage new opportunities to attract and utilise third-party capital within its underwriting. Lancashire has a history of involvement in sidecar and investor backed underwriting vehicles through its Sirocco, Accordion and Saltire efforts.

The new capital management, and we assume fee focused, brand will be called Lancashire Capital Management. The unit will be led by Simon Fascione, who will also continue in his role as Chief Underwriting Officer of Lancashire Insurance Company Limited.

Lancashire Capital Management will focus on the management and execution of the suite of existing managed premium strategies, as well as work on the development of future products and structures.

Commenting on the announcement, Richard Brindle, Lancashire Group CEO commented on the news; “The creation of Lancashire Capital Management is an exciting and logical step for Lancashire given the ongoing evolution of the third party capital market. We have an established track record in relation to the management of third party capital investments via Sirocco, Accordion and more recently Saltire. This announcement further illustrates our commitment to ensure we are continually exploring all avenues of innovation to meet the complex needs of both our clients and investors. Lancashire Capital Management will enhance the Group’s ability to match supply with demand within an industry in transition.”

This demonstrates Lancashire’s ambition to have a flexible platform in place which can quickly take advantage of new opportunities to attract, retain and utilise third-party capital. The sidecar structures the firm has had in place before are often considered as temporary structures, where as this new business unit will likely provide a more permanent base for investors capital to be put to work.

However the third-party capital management business is not seen as something that would replace Lancashire’s core operations.

Richard Brindle commented; “In recent years we have developed our business by engaging with third party capital providers through both the Accordion and the Saltire facilities. We see such opportunities as a capital-efficient way of generating additional benefits for our shareholders, drawing on Lancashire’s underwriting expertise. We are actively engaged in the further development of these types of opportunities under the banner of “Lancashire Capital Management”. We are careful only to develop products we believe in and to ensure that these projects don’t distract us from the “mothership”.”

Presumably Lancashire will look to launch something like a collateralized reinsurance fund, which would meet that aim of a more permanent structure with a longer investment horizon, while continuing to allow it to operate sidecar strategies under the new divisions banner as well.

The third-party capital strategy of leveraging external investors capital for underwriting in order to profit from premium and fee income fits nicely with Lancashire’s desire to be nimble throughout the industry cycle. The new business unit will likely allow Lancashire to be much more flexible and expand its activities in this area.