Leadenhall grows AuM to $1.921 billion, helps Amlin to differentiate

Specialist insurance and reinsurance linked investment manager Leadenhall has grown its ILS assets under management to $1.921 billion over the first-quarter of 2015, helping to enhance Amlin’s competitive position in the challenging reinsurance market.

Amlin, the London-headquartered non-life insurance and reinsurance business, continues to appreciate the differentiated offering it can bring to clients thanks to its stake in ILS investment manager Leadenhall Capital Partners LLP.

The growth of assets under management will help Amlin to provide its dual capital approach to reinsurance underwriting, with Amlin’s equity backed balance-sheet working alongside Leadenhall’s third-party capital backed capacity.

Leadenhall benefits from the enhanced origination that the relationship with Amlin brings to it, as well as having access to rated paper should it be required for certain clients. The differentiated offering, of a mix of traditional and ILS or capital markets backed reinsurance capacity, helps Amlin to enhance the client proposition in a particularly competitive market environment.

Leadenhall Capital began the year with approximately $1.881 billion of capital under management, but by the 31st March 2015 had lifted that figure to $1.921 billion.

At a time when there has been some churn in the ILS investor base, with some long-standing investors pulling-back due to returns no longer being as attractive as they were even two years ago, it’s impressive to achieve growth as it suggests new investors as well as new commitments from existing investors have likely been received by Leadenhall.

Amlin said in a quarterly results statement this morning that it believes that its “strong client position, enhanced by Leadenhall Capital Partners” continues to “differentiate Amlin from other markets.”

While Leadenhall enhances the proposition for Amlin and provides a source of efficient ILS capital that can be put to work in underwriting alongside its own balance-sheet, the company is by no means immune to the challenging reinsurance market environment.

“Competition within Reinsurance lines remains challenging. Amlin has continued to be selective, focussing on areas where pricing meets acceptable rates of return,” the company explained.

Reinsurance renewal rates decreased by 6.3% for Amlin, with U.S. catastrophe risks down 6.5%, international down more at an average 10.5%, while non-catastrophe lines saw rates decline by 4.8%. Amlin highlights that almost 20% of the firm’s annual premiums is now accounted for by non-catastrophe reinsurance premiums, which helps it to avoid the most pressured areas of the market.

The focus on non-catastrophe reinsurance lines also helped Amlin to add $58.8m of new business in the first-quarter of 2015.

Meanwhile U.S. P&C insurance business saw a rate decline of 2.8% in the quarter, but Amlin also won new business here amounting to $38.1m.

Energy rates saw perhaps the most pressure, according to Amlin, with a 13.3% decrease in rates which the re/insurer put down to lower construction and drilling activity due to falling oil prices.

Overall, Amlin underwrote slightly less premiums in Q1, £1.26 billion compared to £1.277 billion in Q1 of 2014. This decline came from P&C insurance and marine and aviation lines, while the reinsurance business at Amlin was actually up for the quarter.

That is where Leadenhall can assist Amlin, helping to differentiate it compared to other reinsurance companies which do not have a source of ILS capital to call on. Amlin’s retained business rate was improved in Q1 2015 compared to a year earlier, it’s impossible to say whether the Leadenhall stake helps here but it does seem likely.

It’s also worth noting, from this quarters results, that Amlin recognised the full costs associated with its latest catastrophe bond, the $200m Tramline Re II Ltd. (Series 2014-1), during the first quarter. The costs amounted to £52.7m but with the cat bond having a four-year term Amlin notes that these will be earned over the term of the contract.

Amlin also noted that the purchase of a group wide retrocessional reinsurance contract, along with more attractive terms, helped it to save on its reinsurance spend. Increased cover along with lower retentions were part of the purchase, to better protect the reinsurance, marine and aviation businesses.

Charles Philipps, Amlin’s CEo, commented; “We have had a good first quarter bearing in mind the more competitive market conditions which demand high levels of diligence in risk selection. We are also realising a number of benefits from the changes made to our organisational structure in 2014, in particular with the combination of outwards reinsurance programmes, from increased knowledge sharing and the ability to offer a wider product offering to some clients. We expect our business and geographical diversity, which has grown over recent years, to be of increased importance in the current environment.”

Having an established ILS manager as part of the group is certainly proving beneficial to Amlin. The additional capacity is helpful, of course, but it is the synergies between balance-sheet capacity and third-party capacity and how more efficient capital can enhance the traditional reinsurance offering where companies stand to benefit most. Amlin has made this work to its benefit, while Leadenhall will be benefiting from the access to business that can help it to grow.

Analysts remain cautious on Amlin due to its focus on property reinsurance underwriting and also P&C insurance. However these are exactly the areas that Leadenhall can augment the offering and help to reduce the cost of underwriting capital, perhaps enabling Amlin to sustain a prolonged softening of these markets much better.

Also read:

– Leadenhall Capital stake enables Amlin to have a foot in both camps.

– Amlin stresses the strategic importance of Leadenhall and ILS in reinsurance.