Hamilton, the Bermuda based insurance and reinsurance holding company, is in the process of developing and establishing a collateralised retrocession offering and third-party capital manager named Ada Capital Management, as it targets the most dislocated segment of reinsurance.
Ada Capital Management Limited will be a retro focused collateralized underwriting agent and manager, sitting as part of the Hamilton group (possibly under its Hamilton ILS entity), with Ada Re Ltd. set to be the underwriting vehicle facing counterparties.
We understand the goal is to establish Ada Capital Management as a retro focused third-party reinsurance capital or insurance-linked securities (ILS) manager, with fund raising ongoing.
However, we’re told that for launch the Ada Capital Management retro strategy will be at least partially funded by Hamilton itself, both as a way to establish alignment with third-party investors but also likely as capital raising for ILS and reinsurance linked ventures is not as easy as it could be right now.
Investors are showing significant interest in the full-range of ILS strategies at this time, especially retrocession where there has been a recognised capacity crunch and exit of capital from the segment.
This has caused retrocessional reinsurance rates to spike higher, with prices increasing 40% or more for many covers.
But, after the pandemic impacted investor confidence and also focus, raising funds for new ILS ventures is not as easy as it could be at this time.
The opportunity is clear though, with Hamilton having an established franchise in primary insurance and also reinsurance through Hamilton Re.
Entry into the retrocession market, with a third-party capital backed strategy, is a smart way to capitalise on the hardening rate environment, while also creating a foothold in one of the potentially more profitable areas of the reinsurance sector.
We understand that the plan for Ada Capital Management is to begin writing collateralized retro reinsurance from the January 1st 20201 renewals, to take advantage of the capacity crunch and resulting rate opportunity that is being seen.
We’re told this is an active capital management and underwriting strategy, so newly established Bermuda-domiciled special purpose insurer (SPI) Ada Re will underwrite UNL collateralized retrocession directly for clients. So will not be taking sidecar-like quota shares from Hamilton Re to gain its exposure.
Hamilton already has a quota share sidecar structure, Turing Re Ltd., through which it shares some of the profits and losses of its reinsurance underwriting with investors.
Ada Capital Management will act as the underwriting agent legal entity, as well as the interface for investors it seems.
Options are now emerging for investors looking to access the returns of retrocessional reinsurance and this will help that segment of the market to at least more closely meet cedant demand for coverage.
However, we’d imagine Ada Capital Management and Ada Re will be just as demanding on rate as other collateralised retro providers and that Hamilton will not be looking to raise too much capital immediately, preferring to benefit from the rate environment and establish Ada Capital as a longer-term retro market participant.
Hamilton declined to comment on the impending launch of Ada Capital Management.