Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Aspen writes more property cat risk through Capital Markets unit


Insurance and reinsurance group Aspen has shifted more of its property catastrophe reinsurance underwriting over to third-party capital managed in its alternative capital management and insurance-linked securities (ILS) unit, Aspen Capital Markets, according to executives at the firm.

As the property catastrophe reinsurance market softening has continued at the most recent January and April 2016 renewals, with an expectation that further softening is possibly in June, re/insurance groups are increasingly shifting some of that business over to third-party capital.

For the last few years the reinsurance market has been learning how best to manage its capital, in a softening market, establishing multiple balance-sheets, using own and third-party investor capital sources.

Aspen is among those traditional insurance and reinsurance companies that embraced third-party capital relatively early on, establishing its Aspen Capital Markets unit and launching vehicles such as the Silverton Re collateralised reinsurance sidecar to help it navigate the changing market.

That navigation continues, according to the firms executives, with Aspen continuing to shift its property catastrophe book onto third-party capital backing.

There has long been a belief among participants in the insurance-linked securities (ILS) sector that certain property catastrophe risks are more efficiently held on third-party capital, while equity-backed balance-sheets are more efficient for other classes of reinsurance business. That view is becoming increasingly wide-spread.

During Aspen’s recent first-quarter 2016 earnings call, this topic received some attention as Aspen executives explained why the firm’s property catastrophe reinsurance segment saw further declines in the quarter.

Aspen reported underwriting $127.6m of gross property catastrophe reinsurance premiums in Q1 2016, down from $153.8m underwritten in Q1 of 2015. However, this was offset by increases in casualty and specialty reinsurance lines.

But it’s not as simple as just pulling back from property cat, Aspen has been shifting more of it onto its third-party capital balance-sheets as a more efficient home for it, enabling the firm to continue to underwrite some risks, while extracting profit for managing the capital.

CEO Chris O’Kane explained during the call; “We continued and managed the reduction of our property cat exposure and leveraged third-party capital through Aspen Capital Markets, further reducing these exposures.”

CFO Scott Kirk explained further that the decline in property catastrophe reinsurance, as the firm reduced its exposure to the class of business, is because Aspen has “Chosen to see the greater portion of this business through Aspen Capital Markets compared to last year.”

Additionally, Aspen also purchased some more retrocessional reinsurance at what Kirk termed “favorable pricing” to further manage and reduce the company’s property catastrophe reinsurance exposure.

This process, that re/insurers like Aspen are going through, is an ongoing one as companies learn to appreciate and leverage the benefits of their third-party capital backed vehicles and balance-sheets.

It is hard now to see the day when all property catastrophe risks return to the balance-sheet, once they are shifted onto more efficient capital it seems destined that they will largely remain there. The onus will then be on traditional re/insurers to establish the means to profit from managing the underwriting and investor capital and they focus will be on how best to profit from this partnership approach.

Also read:

Signs of discipline despite soft reinsurance market: Aspen Re CUO.

Aspen renews Silverton Re sidecar at upsized $125m for 2016.

Property cat reinsurance “not as much fun as it was”, says Aspen CEO.

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