Novae continues to expand E&S, supported by Securis’ ILS capacity

London and Lloyd’s specialty market insurance and reinsurance player Novae Group has continued to expand its excess & surplus lines property insurance in the first-half of this year, assisted by the provision of capacity from ILS investment manager Securis Investment Partners.

Novae is of course now going through the process of being acquired by Bermudian insurance and reinsurance specialist AXIS Capital Holdings, a move that will result in an expansion to the E&S platform.

However the London based specialty player has already been achieving successful growth in the E&S space thanks to the use of efficient capital provided through funds under management at Securis.

In the first six-months of 2017 Novae has increased its gross written premium to £598.8 million, up from £513.1 million a year earlier.

This growth has come despite the softened reinsurance market and increasingly competitive and softening specialty insurance market at Lloyd’s.

Novae has sought to change its business mix in response to the challenging market environment and the excess & surplus property business has provided an opportunity to do this while also growing the book.

Matthew Fosh, Chief Executive Officer, commented this morning; “Our strategy since 2015 has been to re-engineer our underwriting portfolio in the face of a deteriorating soft market which has tested even the largest industry players, and our result for H1 2017 should be seen in that context.

“It has only been by Novae focussing on niche classes where it could demonstrate a sustainable competitive advantage that the long-term prospects of the business could best be served.”

Novae’s property division delivered a significant proportion of the growth, recording premiums of £307.2 million in the quarter, up from £247.7 million in the prior year.

The E&S activity drove the majority of this expansion, with the company saying that, “Consistent with the Group’s strategy in recent years this growth was centred in direct insurance classes and most notably within the US Excess & Surplus lines, supported by the Group’s Special Purpose Arrangement (“SPA”) with Securis Investment Partners LLP.”

In terms of the premium figures the growth in the E&S sector was likely even more important to Novae, as it has continued to shrink its international and U.S. property catastrophe treaty reinsurance business at the same time.

Novae said that growth in its property division, “Continued to be focussed in the established US Excess and Surplus lines portfolio which benefits from the SPA with Securis Investment Partners LLP.”

Highlighting just how much this activity has increased at the firm, Novae said that the U.S. E&S business with has contributed 45.9% of the property division’s premium income in the first-half of 2017, up from 32.4% in H1 2016.

During the first-half the activity with the Securis special purpose Lloyd’s of London vehicle was also apparent in an increase to reinsurance spend at Novae, which it puts partly down to increased cessions to the Securis SPA.

Outwards reinsurance spend rose to £247.7 million, up from £158.7 million, resulting in a reinsurance spend ratio of 41.4%, up from 30.9%. This also includes increased acquisition of proportional reinsurance to help Novae grow its cyber book.

Leveraging efficient ILS capital through the Securis special purpose arrangement (SPA) at Lloyd’s helps Novae to provide more capacity to E&S clients and keep its pricing more competitive.

AXIS also has an established U.S. E&S business, so once the acquisition is completed the combined AXIS – Novae E&S platform could bring an increasing premium volume through this platform, to the benefit of Securis and its investor-base.

Fosh commented on the acquisition; “Our specialist underwriting expertise is highly complementary with AXIS’ own successful specialty franchise and has resulted in their offer to acquire the business.

“The proposed transaction will provide us with the increased scale and financial resources to better compete in current markets.”

Leveraging third-party capital through the SPA will help to make the enlarged E&S business even more competitive, we’d imagine.