Global insurance and reinsurance company Aspen will look to increase the third-party capital under management at its Aspen Capital Markets unit and increase the range of products available to investors in 2015, according to CEO Chris O’Kane.
Aspen Insurance Holdings launched its insurance-linked securities (ILS) and alternative reinsurance capital management unit in April 2013 and has since then added the Silverton Re fully-collateralized reinsurance sidecar in December 2013 and grown its third-party funds under management to around $135m.
The Silverton Re sidecar now sits at around $80m in size, with the remaining capital managed in other structures managed for third-party investors. Aspen wants to grow this and add to the range of products which it offers to investors, suggesting that the Aspen Capital Markets unit will be an increasing focus of the group and ILS capital will grow its contribution to the firms earnings.
CEO Chris O’Kane discussed the progress of Aspen Capital Markets and his ambitions to grow the unit during the re/insurers third-quarter earnings call.
“As you know, we established Aspen Capital Markets (ACM) last year, Brian Tobben and his team have done an excellent job. We currently have around $130 million of third-party capital and the team has continued to develop a strong track record for future products. ACM’s total contribution for group earning for all products is now in excess of $10 million,” O’Kane explained.
Having now proven the value that managing third-party capital can bring to a re/insurer, Aspen Capital Markets looks set to become an increasing focus at the firm. O’Kane clearly sees the benefit of expanding the unit and growing the amount of investor capital it manages.
O’Kane said growth is likely next year for ACM; “In 2015 we will continue to expand the ACM platform with both an increased level of third-party capital as well as adding new products that investors are looking to have access to.”
Aspen is using its third-party capital management to boost underwriting capability and to help it to expand, while freeing up its balance sheet a little as well.
“ACM enables us to meet the needs of our underwriting plans and our investors. Utilising the capital in ACM, combined with other outwards reinsurance options, we are able to offer bigger line sizes so we can increase our gross exposures, while keeping our net exposure relatively flat. With those larger line sizes we’re positioned to access the best risks and provide clients with options they seek,” O’Kane explained.
The lower-cost of ILS capital is helping Aspen to put its balance-sheet to work where most effective for it. This is one of the key benefits that re/insurers are discovering with ILS and alternative capital, it has a lower return requirement than their balance sheet in many cases and so allows them to operate in new areas, put the balance-sheet to work where the returns are most appropriate and generally to optimise their capital better.
O’Kane continued; “The property catastrophe markets, where rates have been under increasing amounts of pressure, the introduction of capital with a lower return hurdle has allowed us to increase our offerings to our underwriting clients benefiting them, benefiting ACM’s investors and also Aspen.”
As Aspen Capital Markets grows, both in terms of assets under management and range of products, the income it contributes to Aspen will increase in size and also offer a regular source of management fee which is a useful source of predictable income. As these units become increasingly important to re/insurers, which seems a certainty in the currently evolving marketplace, companies like Aspen are going to find the income very useful.
O’Kane said; “As we continue to expand our offering to third-party investors we expect to generate an increased level of fee income, which is less volatile in nature and is an important asset of a diversified strategy.”
The question still remains about finding the right balance between third-party and balance-sheet reinsurance capital. For some companies which are currently beginning to manage investor capital and offer ILS investment options, finding that balance could be tricky, particularly in a soft cycle.