Ascot Reinsurance Company Limited (Ascot Re), the newly registered Bermuda reinsurance platform for the Ascot Group, will begin its operations acting as a kind of third-party capitalised sidecar for the Ascot Syndicate 1414, by taking a quota share from the firms Lloyd’s operations.
According to rating agency A.M. Best, the Ascot Re business plan shows that the reinsurer will begin its life by underwriting quota-share reinsurance for Ascot Underwriting managed Lloyd’s Syndicate 1414.
With Ascot Re backed by the pension fund capital of Ascot owner the Canada Pension Plan Investment Board (CPPIB), the reinsurer will effectively serve to act as an efficient reinsurance sidecar for the Ascot Group, while augmenting its capacity to write more business through the syndicate at Lloyd’s as well.
It’s a typical way for a new reinsurance vehicle to launch, acting as a sidecar or internal reinsurer to begin but with an ambition to expand to write third-party business as well over time.
It’s possible that Ascot Re may be too late for the Janaury 2018 renewals, so a quota share of the parent group’s risks is a more feasible way for it to get up and running in early 2018.
The Ascot Syndicate 1414 portfolio is expected to be reflected in Ascot Re, and A.M. Best explained that property and reinsurance risks are likely to dominate the reinsurers portfolio, with a significant concentration in U.S. catastrophe risks.
Given the catastrophe risk focus and exposure at Ascot Re, A.M. Best said that it is likely to exhibit a moderate level of third-party reinsurance dependence.
A.M. Best notes that it, “views the markets that Ascot Re will operate in as highly competitive, which could adversely affect the company’s ability to grow profitably.”
That makes the quota share from the syndicate even more important to the launch of Ascot Re, but does not detract from the benefits the reinsurer will provide to its parent company and CPPIB as the investor.
Even if market conditions are competitive in reinsurance, the use of Ascot Re as a source of quota share capacity for the syndicate will enable more business to be underwritten in the Lloyd’s entity, while it also benefits from potentially more efficient and lower-cost reinsurance arrangements.
For the CPPIB, the strategy still means the pension fund will benefit from enhanced access to property and catastrophe reinsurance risks, an asset that is relatively uncorrelated with its broader investment portfolios.
The quota share reinsurance arrangement, between Ascot Re and Syndicate 1414, means that the reinsurers book will mirror the syndicate at first.
A.M. Best said that Ascot’s Syndicate 1414 has shown a strong track record of profits, outperforming the wider Lloyd’s of London market in 14 out of the past 15 years, based on combined ratios. However the gap has shrunk in recent years, A.M. Best also said.
The rating agency assigned a Financial Strength Rating of A (Excellent) and a Long-Term Issuer Credit Rating of “a” to Ascot Re, with both ratings having an outlook of stable.
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