Amlin plc, the non-life insurance and reinsurance group, has felt the more intense competition in the traditional reinsurance market, created by increased penetration of capital markets players, but the same trend has increased synergies realised from its investment in ILS investment specialist Leadenhall Capital Partners.
Amlin made an investment in insurance-linked securities and reinsurance-linked investment manager Leadenhall Capital in 2008, an investment that increased to as much as $111.9m back in 2011. Leadenhall Capital Partners has now grown its assets under management to over $1.4 billion of funds and as it grows, alongside the growth of the ILS market and third-party capital in reinsurance, Amlin has found synergies between the firms increasing.
In the first-half of 2013 Amlin found that competition for catastrophe reinsurance business increased, with the capital markets increasing participation in the space, an absence of major lossses and cedants carrying higher retentions all creating a more competitive market at renewals. Amlin saw a decline of 14.9% across its U.S. renewal rates in June. Amlin reported profits for the first-half a little lower than a year earlier as a result of this increased competition, reduced rates and losses from catastrophes such as the flooding in Germany.
Amlin remains positive however and feels it has a strategy in place to help it counteract rate reductions with the help of its global book. Charles Philipps, Chief Executive of Amlin, said; “These are a solid set of results which demonstrate a good level of underlying underwriting profitability. There are positive trends in a number of our businesses which will counteract downward pressure on catastrophe reinsurance rates and this reinforces the benefit of our diversification strategy. We are optimistic about the out-turn for the full year.”
Amlin will continue to develop its core reinsurance franchise to remain a market leader despite the influence of third-party capital from capital markets investors. Part of this strategy is to maximise its relationship with Leadenhall Capital making the most of its ability to offer fully collateralized capacity alongside its balance sheet reinsurance capacity.
Amlin has found that Leadenhall Capital is becoming more and more relevant to its reinsurance strategy, with increasing synergies between its traditional reinsurance business and Leadenhall’s activity in the market. Amlin said that Leadenhall strengthens its overall offering to its clients, while at the same time Leadenhall benefits from its relationship with Amlin with a competitive advantage in sourcing attractive business.
With its long-standing relationship with Leadenhall Capital, Amlin has a lead on many of the reinsurers only now setting up third-party capital management units. It has a strong position in the ILS market and a solid track-record in deploying collateralized reinsurance capacity.
Amlin believes that it is in a strong position to continue generating good returns from its reinsurance business, despite the impact of the capital markets participation in the sector. Amlin sees its investment in Leadenhall Capital as key to this, as it gives Amlin the scope to develop its position in the convergence sector of the reinsurance market and enhances its overall reinsurance franchise.
Amlin’s investment in the Leadenhall Capital funds saw net realised gains of £0.2m and net unrealised gains of £1.2m for the first six months of 2013. This shows that not only does Leadenhall give Amlin new opportunities within the reinsurance convergence space, it also provides a valuable source of investment income.