Validus’ share of income from AlphaCat continues to grow in Q1

Bermuda domiciled insurer and reinsurer Validus saw its share of income from AlphaCat Managers Ltd., its third-party capital manager, increase during the first-quarter of 2016 to $8.7 million, helping the firm grow its gross written premiums in the period.

Validus’ first-quarter results reveal the benefits the firm continues to achieve from its third-party reinsurance capital manager AlphaCat, which continued to perform well in Q1, helping the firm report increased gross written premiums (GWP) of $1.17 billion across the business.

AlphaCat’s asset under management has actually shrunk slightly in recent times, from $2.386 billion as at January 1^st 2016, to $2.318 billion as at April 1^st 2016.

However, Validus reveals that during the first-quarter its share of AlphaCat income increased to $8.8 million, compared with $7.8 million a year earlier, and $7.1 million at the end of 2015.

Validus continues to see AlphaCat increasingly contribute to its overall reinsurance bottom-line, utilising third-party investor-backed capacity to help it navigate the softening landscape.

AlphaCat raised $49.2 million of capital during the first three months of the year, of which $45.8 million came from third-party investors, which the firm reveals helped drive a reduction in expenses.

Impressively, AlphaCat’s expenses were down by $4.6 million when compared with the same period last year, ending March at $2.4 million. “The decrease was primarily due to reduced placement fees incurred in relation to raising new capital during the three months ended March 31, 2016,” explained Validus.

Validus also saw its available investment income from AlphaCat funds and sidecars grow during the quarter to $5.6 million, a rise from the $5.1 million reported for the same period last year.

Interestingly, Validus revealed that within its reinsurance segment property lines GWP declined to $192.6 million in Q1, which the firm notes was “primarily due to utilization of third party capital…”

This suggests that there is some business that the firm is using insurance-linked securities (ILS) capacity to underwrite in areas of the market that no longer meet its balance sheet return requirements, a sensible and disciplined approach that’s ever more important and prevalent in this challenging market.

Validus’ transition to a hybrid insurance and reinsurance underwriter that sees it utilise AlphaCat and third-party reinsurance capital to target the property catastrophe market, is clearly benefitting the firm.

With profitability hard to come by in the softening reinsurance landscape more and more firms are expected to adopt different strategies, which includes the use of third-party vehicles like AlphaCat to compliment returns utilising efficient capital.

And for Validus the approach appears to be working well so far, as the re/insurer continues to see increased income from the vehicle, supporting its overall reinsurance segment operations.