Ark shares almost one-third of Q1 losses with third-party capital providers

Ark Underwriting, a diversified insurance and reinsurance operation of financial services holding company White Mountains, shared a significant proportion of its first-quarter 2021 catastrophe losses with providers of third-party capital that back the companies underwriting.

In reporting its results, White Mountains CEO Manning Rountree explained that Ark’s first-quarter results were impacted by “heavy cat losses, chiefly related to Winter Storm Uri.”

White Mountains Insurance Group, Ltd. made a significant investment into re/insurer Ark Insurance Holdings in 2020, injecting $805 million of capital to help ramp up its capacity across the markets it operates in and upgrade its reinsurance capabilities in Bermuda.

The upshot is a growing market presence and Rountree revealed that Ark has underwritten some $405 million of gross written premiums during Q1 of 2021, which is more than double the prior year.

However, adjusted Ark’s combined ratio reached 108%, as catastrophe losses made its underwriting unprofitable.

Ark underwrites its business through a leading Lloyd’s market syndicate platform, as well as its Bermuda operations.

Third-party capital is in use for both platforms, with investors backing some of the syndicate writings and quota shares as well as other third-party capital backed reinsurance and retro in place, we understand.

On a GAAP basis, the combined ratio for Ark came out at 109% for the quarter, which the company said was higher as the adjusted takes into account cessions to third-party capital.

17 points of the combined ratio were catastrophe losses, with 14 down to winter storm Uri alone.

As a result, Ark reported a pre-tax loss of $33 million for the first quarter of 2021, although that does include $25 million of transaction expenses related to White Mountains’ investment into Ark.

Ian Beaton, CEO of Ark, commented, “Although catastrophe losses were unusually heavy in the first quarter, we are off to a good start in 2021.  All licenses are in hand, and all underwriting platforms are functioning as contemplated.  We received an AM Best financial strength rating of “A/stable”, the highest rating in the Class of 2020.  Operational execution has been strong, and hiring is more or less complete.  Driven by a good January renewal season, gross written premiums were $405 million in the quarter, more than double 2020 levels, with blended renewal pricing up over 10%.  The heavy cat losses in the quarter added 17 points to the loss ratio, resulting in an adjusted combined ratio of 108% for the quarter.  Looking forward, market conditions remain attractive, and we are optimistic about profitable growth in the book.”

Ark reported that third-party capital providers shared in $31.6 million of its adjusted $97.6 million of losses, leaving it with $66 million of losses and LAE on a GAAP basis for the quarter.

It drives home the importance of third-party investors to so many insurance and reinsurance business models, absorbing significant proportions of the negative effects of catastrophe events in particular, helping companies such as Ark better manage the volatility in their property books.