Brit grows third-party capital income, Sussex used to fund Ki Syndicate

Specialty insurance and reinsurance player Brit Ltd. reported its results for 2021 this morning and its senior executives disclosed that the company experienced increased income through its third-party capital management activities for the year, while these structures also played a role in funding capital to its new algorithmic Ki Syndicate.

Martin Thompson, Interim Group Chief Executive Officer of Brit explained that, “Our clear strategy saw us deliver a combined ratio for the year of 95.7%. This reflected the combination of an excellent attritional ratio, prior year reserve releases and increased income from our third party capital management and MGA businesses.”

The company delivered a $247 million profit for 2021, much better than 2020’s $236 million loss.

Gross written premiums expanded 32% to $3.24 billion for the year, while a 95.7% combined ratio meant that the business was technically very profitable despite a challenging catastrophe year.

Gavin Wilkinson, Group Chief Financial Officer, also commented that, “We have continued to benefit from the growth of our third party capital vehicles and our investments in MGAs. Working with our capital and distribution partners is an important part of Brit’s strategy, enhancing our leadership position, strengthening our client proposition and making our expense base more efficient.”

Brit’s main third-party capital vehicle sits under the Sussex Capital branding now, with collateralised reinsurance products underwritten and the structures also used to channel capital to its other underwriting vehicles from third-party investors.

The underwriting result, in terms of income attributable to third party capital providers but earned by Brit came out at $2.5 million for 2021, which suggests the investors faced some losses during the year, as in 2020 $6 million of income earned by Brit was shared with investors in the third-party capital structures.

“The generation of such underwriting-related income, derived from the management of third party underwriting capital and from our MGAs placing business with third parties, remains an important part of Brit strategy and has the benefit of assisting Brit in managing its expense base,” the company explained.

Underwriting fee income and commissions earned by Brit rose to $56.6 million for the year, much better than the $29.7 million earned in 2020. A portion of this will be related to the insurance-linked securities (ILS) style third-party capital activities under the Sussex Capital brand.

The Sussex Capital ILS and third-party capital platform proved particularly useful in 2021 and played a role in more ways than just capital management and ILS-style transactions for investors.

Part of this was protection focused, as Brit had cover in-force from its December 2020 issued catastrophe bond, the $300 million Sussex Capital UK PCC Limited (Series 2020-1) which was issued using its UK ILS vehicle.

But, Brit was also seen to use the Sussex structures to channel funding to its newest initiative, the Ki algorithmic underwriting platform and its syndicate at Lloyd’s.

Ki Financial Ltd benefits from a letter of credit facility that delivers a share of the Funds at Lloyd’s for its Syndicate 1618 via a segregated account of Sussex Re.

For the 2021 underwriting year this was a $50 million funding contribution to the Ki strategy, but it seems that at the end of 2021, in time for the current 2022 underwriting year, that letter of credit and funding of the Ki Syndicate strategy through Sussex Re increased to $130 million.

This shows Brit cleverly using its ILS structure in order to channel, what is presumably third-party capital sourced funding to another of its syndicate ventures, in particular the algorithmic underwriting venture Ki.

As a result, the use of third-party capital increases in importance, as too does the Sussex Capital platform and the ILS infrastructure it has provided the company.