Argo continues to ramp up use of third-party reinsurance capital

Bermuda headquartered international specialty insurance and reinsurance firm Argo Group has increased its use of third-party capital again in the last quarter, resulting in fewer net premiums retained.

Alongside strategic use of traditional reinsurance and retrocession, Argo has steadily been managing down its gross premiums, offloading more of the underwritten premium to both traditional and alternative capital partners in return for fee income.

The re/insurer renewed its Harambee Re collateralised reinsurance sidecar again for 2019, as part of its strategy to continues tapping into the capital markets for protection and to augment its capacity.

As well as the sidecar, Argo enters into private quota shares and makes other cessions to ILS investors, we understand.

The company said earlier this year that it had retained its access to third-party capital from investors, for which it is increasingly originating underwriting business, for the 2019 underwriting year.

Now it transpires that the firm has been putting these capital partner relationships to good use once again.

Argo said, in announcing its latest results yesterday, that in the first-quarter of 2019 the percent of net premiums the firm retained decreased, which it says was “due in large part to an increase in ongoing strategic use of reinsurance programs and an increased use of third-party capital, most notably within Property Reinsurance lines.”

While gross premiums written rose by almost 4% Argo said that its net retained premiums were just 32.1%, down from 35% for the first quarter of 2018.

Net written premiums for Property lines fell by $22.3 million or 72.6% as a result of the higher cessions of business made.

Reported underwriting income fell as a result of the higher cessions to reinsurance and third-party capital, Argo said, but net fee income rose year on year slightly.

While the loss of underwriting income is not fully replaced, Argo is using the higher cessions of property business to give it the ability to write more elsewhere in its book, hence the gross to net strategy is not a pure search for fee income, rather it enables the re/insurer to better balance and diversify its portfolio and sources of income.

Of course it also allows Argo to enhance its relevancy with its client base, while maintaining or even growing underwriting activities in certain areas, all without taking on too much additional risk and creating new revenue streams as well.

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