Leadenhall passes $2bn, as synergies with Amlin continue to grow

Specialist insurance and reinsurance linked investment manager Leadenhall Capital Partners LLP has reached a new milestone, passing the $2 billion of assets mark to reach $2.0077 billion, while at the same time seeing the synergies with parent Amlin grow.

Leadenhall’s insurance and reinsurance linked assets under management have grown by slightly more than approximately 6.7% over the first-half of 2015, having started the year at $1.8008 billion.

As Leadenhall has steadily increased its assets under management over the last few years, it has enabled the ILS manager and Amlin to increase the synergies from the relationship, enhancing the re/insurance group’s competitive position in a challenging marketplace.

The continued growth at Leadenhall helps Amlin to provide its clients with a dual capital approach to reinsurance underwriting, with it’s equity backed balance-sheet working alongside Leadenhall’s third-party capital sourced capacity.

Leadenhall, meanwhile, benefits from the enhanced origination that the relationship with Amlin brings provides, as well as having access to rated paper should it be required for certain clients. Offering a blend of traditional and ILS, or capital markets, backed reinsurance capacity, helps Amlin to enhance the client proposition.

Amlin said in its first-half results this morning that its “strong client proposition, enhanced by Leadenhall Capital Partners continues to differentiate Amlin.” This differentiation is important to re/insurance businesses in the current reinsurance market environment.

Chief Executive Charles Philipps stressed; “Our strong franchise and standing with clients is enabling us to navigate the tougher environment for catastrophe reinsurance and continues to be enhanced by Leadenhall Capital Partners, our specialist insurance-linked securities business, which now has funds under management of over $2 billion.”

It sees opportunities for additional selective growth, within the reinsurance market despite the challenging environment and soft rates, which it says is evidenced by the increased written premium and which will also be assisted by Leadenhall.

“The growing synergies” between Amlin and Leadenhall meant that “the amount of premium ceded to investment funds managed by Leadenhall is increasing and amounted to £29.4 million in the period” the re/insurers results state. That figure is more than double the £13.9m ceded in the first-half of 2014.

This growth of synergies and business ceded/written by Leadenhall will be having an increasingly meaningful impact in terms of profit share back to Amlin, as the assets under management grow. Leadenhall’s capacity augments Amlin’s, enabling it to be more competitive in some areas of the marketplace and to offer what clients now want, a choice in terms of capital and capacity sources.

Perhaps the best measure of the increased benefits that Amlin is getting out of its stake in Leadenhall, which if you remember the re/insurance group increased to 75% in late 2014, is the increase in investment management income.

This investment management income represents income from the funds managed by Leadenhall. For the whole of 2014 Amlin reported £2.4m of income, for the first-half of 2015 we can now see the full impact of the increased ownership stake, with Amlin reporting £7.6m of investment management income.

Additionally, Amlin reports £1.5m of unrealised gains from its investment in the funds managed by Leadenhall.

Amlin’s first-half profit declined in 2015 due to a change in the way the re/insurer accounts for the seasonality of catastrophe reinsurance premiums earned.

Charles Philipps explained; “This is a solid set of results in the more challenging market which prevails. Were it not for our change in accounting for the seasonality of catastrophe reinsurance earned premium, profit before tax would have been considerably ahead of the first half of last year. This will unwind in the second half. I am also pleased with the substantial progress which has been made following our reorganisation last year. New opportunities exist and efficiency gains are being realised.”

The other factor that has held up Amlin’s results considerably, considering the currently challenging environment, is a near-doubling of the re/insurers investment return in the first-half, reporting a 2.2% return and £95.9m of investment income, compared to 1.3% and £54.9m in H1 2014.

Also notable for Amlin in the first-half is the fact that it has reduced its own reinsurance spend, while also securing a greater amount of cover, as it took advantage of reinsurance market conditions to better protect itself. The catastrophe bond that Amlin issued at the end of 2014, Tramline Re II Ltd. (Series 2014-1), likely assisted with the reduction in reinsurance costs over the period.

Philipps explained on the state of the reinsurance market;  “We’ve seen an average overall rate decrease of 4%, broadly in line with our planning assumptions. And lately there have been some signs that the rate of decreases has started to slow for catastrophe reinsurance.”

Amlin also grew its non-catastrophe reinsurance business, as it sought out better rates and conditions away from the catastrophe exposed part of the market. This non-catastrophe business now represents 65% of Amlin’s reinsurance income.

Philipps explained; “This is relevant, as non-catastrophe business has not suffered from the same rating pressure as catastrophe business.”

With an established ILS manager embedded with the re/insurance group, Amlin is well-positioned for any change in the market or increase in underwriting opportunities. Philipps explained that Amlin will target diversification through adding underwriters for new classes, or complementary classes, as well as looking to diversify geographically.

That additional diversification will also benefit Leadenhall and its investors, increasing the ILS managers access to business and enabling its capital to be put to work more broadly across the reinsurance market. The addition of more diversification will also provide additional opportunities for Leadenhall to grow its AuM even further past the $2 billion mark.