Amlin plc, the non-life insurance and reinsurance group, announced that it has reached a non-binding agreement in principle to increase its stake in insurance-linked securities (ILS) and reinsurance-linked investments manager Leadenhall Capital Partners.
Leadenhall Capital Partners LLP, a London-based ILS manager with approximately $1.8 billion of insurance linked assets under its management, was formed in 2008 as a joint venture between its partners and Amlin. Amlin has always enjoyed a 40% stake in Leadenhall, giving it a source of income from the management fees and profits while also giving it a valuable foothold in the ILS and third-party reinsurance capital management space.
Amlin has always had an option to increase its stake in Leadenhall Capital Partners and has stated repeatedly that Leadenhall was an important part of the re/insurers future. Back in March, CEO of Amlin Charles Philipps said; “We will continue developing the synergies between Leadenhall Capital Partners and our reinsurance business. We currently have a 40% partnership share and we expect to increase this either partly or fully, during 2014.”
According to this mornings announcement, Amlin will up its stake in Leadenhall from the current 40% to 75%. The consideration, or cost to Amlin, of this will be determined by the profitability of Leadenhall, subject to a cap, and will be payable by Amlin in three installments from 2014 to 2016. The remaining 25% interest in Leadenhall will continue to be held by the individual partners of the ILS manager on an ongoing basis.
The agreement also defines a number of safeguards to ensure operational independence for Leadenhall and alignment of interest between the ILS investment manager and its third-party investors. These safeguards will include a continuation of separate entity and remuneration structures as well as strengthened governance including the addition of an independent non-executive to the board. Decisions regarding where third-party capital will be invested will remain the decision of Leadenhall, continuing to be independent of Amlin.
Charles Philipps, Chief Executive of Amlin commented on the announcement; “Since its original seed investment in Leadenhall Capital Partners, Amlin has supported LCP’s strong growth to approximately $1.8bn of assets under management as of today. During this time LCP and Amlin have developed significant synergies, which have helped to differentiate Amlin’s (re)insurance client proposition from its competitors as well as strengthening LCP’s market position. As alternative capital becomes an increasingly prominent feature of (re)insurance markets, I expect Amlin’s increased interest in LCP to support its continued growth and further enhance co-operation and synergies between our businesses.”
John Wells (Chairman) and Luca Albertini (CEO and CIO) of Leadenhall added; “We are delighted to have agreed the basis for the next stage of our development with Amlin. Our innovative joint venture has served our investor base well since 2008, combining independent capital markets skills with the power and reach of a major (re)insurer. This agreement on ownership and structure for the foreseeable future will provide a stable platform for growth, while ensuring the independence of investment decision making and a strong alignment between the management team and our investors.”
The transaction is subject to regulatory consent and the execution of definitive legal documentation.
The agreement will allow Amlin to make the most of third-party reinsurance capital, increasing the income it will contribute while maximising its share of one of the larger ILS managers in the space. Amlin can also no doubt help Leadenhall to grow and with increased synergies assist with access to attractive reinsurance investments.
For Leadenhall the agreement will allow it to concentrate on its job of growing the firms assets under management while continuing to make independent investment decisions to put the capital to work in reinsurance linked investments. The agreement should help Leadenhall to further secure its position as one of the leading managers in the insurance linked securities space.