Blackstone puts weight behind Ki, as Brit’s algorithmic syndicate raises $500m

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Private equity investment giant Blackstone has thrown its weight behind Brit’s algorithmic, follow-form Lloyd’s syndicate Ki, investing alongside Brit parent Fairfax in a $500m capital raise for the new venture.

ki-syndicate-logoKi describes itself as the “first fully digital and algorithmically-driven Lloyd’s syndicate” aiming to follow performing underwriting units in the Lloyd’s market, by allocating its capacity on an algorithmic basis.

Is algorithmic really programmatic and how “digital” is Ki actually under the hood? Not enough information is available at this time to make that judgement.

But its launch has captured minds and shown that doing things differently within the construct of the world’s oldest insurance and reinsurance market Lloyd’s can attract significant backing.

Ki said this morning it has raised $500m of committed capital from funds managed by Blackstone Tactical Opportunities and Fairfax Financial Holdings Limited.

This will be used to fund Ki’s expansion as it launches in the fourth-quarter of this year, enabling it to grow more rapidly to significant scale.

Ki, which is owned by Brit, will write its’ first risk incepting in January 2021.

Timing is everything of course and the hardening of insurance and reinsurance rates will have been a significant attraction for an investor like Blackstone.

But also, the differentiated approach of Ki, in using rules to define where its following capacity is deployed, will have been another attractor.

Ki intends t underwrite using an algorithm-driven approach, providing instant follow capacity through a proprietary digital platform and underwriting a broad range of specialty business following selected lead underwriters in the Lloyd’s market, including parent Brit.

Qasim Abbas, Senior Managing Director at Blackstone, commented on the funding, “Matthew, Mark and the rest of the Ki team have created a unique opportunity in Lloyd’s to revolutionise the market and we are excited to be a part of this, in partnership with Fairfax. Ki’s first-of-its-kind digital model will deliver a unique advantage to its’ business partners which we believe will enable it to build to significant scale, while its algorithmically-driven approach represents an important evolution in the portfolio management of specialty risks.”

Burkhard Keese, CFO at Lloyd’s of London, added, “We are delighted to see Blackstone entering Lloyd’s at this key moment in our modernisation, illustrating the appeal of our market. Ki is fully aligned to the Lloyd’s Blueprint, driving the adoption of new technology to deliver a more competitive market, and we wish the team success as it launches later this year.”

Matthew Wilson, CEO of Brit and Chairman of Ki, said, “Our Partnership with Fairfax and Blackstone on the launch of Ki will allow the business to reach its full potential with significant committed capital. Blackstone has a phenomenal track record and is entering the Lloyd’s market at a pivotal moment, with increased acceptance of digital models and a flight to quality.”

Mark Allan, CEO of Ki and Group CFO of Brit, commented, “Securing support from Blackstone, one of the world’s leading investment firms, is a significant statement of confidence in Ki and the vision we have set out. Blackstone’s commitment to Ki completes our world-class group of partners with Fairfax, Brit, Google Cloud and UCL already supporting the business. With our investors, we have the financial firepower to rapidly scale the business and support our plan to provide a truly differentiated offering to brokers and clients.”

Ki hopes to significantly reduce the length of time taken for brokers to place their follow capacity, using an algorithm developed with support from University College London that will evaluate Lloyd’s policies and automatically quote for business through an always available digital platform.

Underwriting rules written in code promise to make capacity deployment almost real-time, as it is needed. While the ability to tap into a digital syndicate to enhance line sizes and capacity will be very attractive to Lloyd’s leaders.

How often the algorithm needs training, which really depends how sophisticated this actually is (as yet unknown), could be interesting to understand though.

As algorithms do need honing over time, to prevent unwanted (or unwise) deployments occurring and to control that you would really need to have the full range of inputs on underwriting and indeed risk performance down to the most granular level coming back to you in almost real-time.

Ki is a glimpse of the future though and this approach is likely to become much more widespread and sophisticated as more tech power is thrown at the world of underwriting insurance and reinsurance in future.

It’s no surprise really to see an investor like Blackstone aiming to capture returns from a venture like Ki from the off, seeing the insurance and reinsurance linked return potential for its clients.

One day, Ki could tap into institutional investor appetite through insurance-linked securities (ILS) structures as well, it would seem likely.

Chris Denton, Group Head of ILS and Capital Management at Brit, told us in a recent interview, “Ki is an exciting project and, naturally, there will be demand from institutional investors to get behind it.”

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