Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Argo retains reinsurance structure, access to third-party capital for 2019


International specialty insurance and reinsurance firm Argo Group retained the overall structure of its reinsurance and retrocession for 2019, including its access to third-party capital from investors for which it is increasingly originating underwriting business.

argo-group-logoArgo adjusted the capital structure supporting its international reinsurance business at the beginning of 2018, after the completion of the integration of its acquisition Ariel Re.

This saw Argo restructuring its reinsurance program to reduce exposure to major catastrophe events and reduce earnings volatility, but also saw the firm strategically shifting its strategy to underwrite more risk for third-party investors through quota shares and insurance-linked securities (ILS), a strategy that now continues.

This strategy means that Argo is underwriting higher gross premiums in its property and catastrophe exposed business lines, but ceding more to third-party capital partners resulting in less of an increase in net premiums earned.

As with other major re/insurers, the strategy enables Argo to increase its relevance and offer clients broader solutions or more capacity, while not overly increasing the exposures in its book and of course earning all important fee income at the same time.

“We’ve now made the transition into a risk originator on behalf of third-parties,” Argo Group CEO Mark E. Watson III said during the re/insurers fourth-quarter earnings call yesterday.

Commenting on what this meant at the renewals and looking ahead into 2019, Watson said, “At 1/1 we were able to keep both our reinsurance programs and our retro programs and the capital supporting our business intact for 2019.

“Structurally, almost exactly the way that we did for 2018 and I think that’s a huge feature of our risk management, in terms of our ability to manage volatility.”

He continued, “Also, it just re-emphasises that for our cat exposure in particular, that we’re still originating risks for others, given that most of the risk we push out to the capital markets and other third-party capital providers beyond just our traditional reinsurers and retrocessionaires. So we’re really, really pleased that we were able to put the same structure in place for ’19 that we had in ’18.”

Argo clearly sees third-party capital as a long-term partner for its business and views the use of it as a way it can leverage its strengths in originating risks, while reducing its volatility at the same time.

If it’s also profitable and helps Argo to increase its relevance for ceding clients, then it seems destined to become a natural and likely growing part of the re/insurers strategy going forwards.

Of course, as well as the private quota shares and cessions to ILS investors, Argo also renewed its Harambee Re collateralized reinsurance sidecar vehicle for the 2019 underwriting year, with that vehicle remaining a core part of its third-party capital strategy.

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