Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Brit highlights benefit of capital partner relationships behind Sussex


Specialty insurance and reinsurance player Brit Ltd. highlighted the important benefit of the capital partner relationships behind its Sussex Capital collateralised reinsurance structure this morning, while the firms third-party investors appear to have taken a small share of losses in the first-half.

brit-logoBrit operates a range of third-party reinsurance capital structures, including the Verustus collateralised sidecar vehicle and its Sussex Capital insurance-linked securities (ILS) platform.

Last year, the company expanded its ILS activities, raising fresh third-party capital within the sidecar it operates and for its Sussex ILS fund platform, also launching a new ILS fund to directly support its syndicate activities at Lloyd’s.

This morning the companies executives again highlighted the importance of third-party capital to the Brit business.

Group CEO Matthew Wilson highlighted the key role of “innovative capital management solutions” within Brit’s future plans.

While CFO Mark Allan explained, “We continue to benefit from the financial strength of our parent, Fairfax, and from our relationships with our capital partners supporting Syndicate 2988 and the Sussex vehicles.”

Investors backing the range of third-party capitalised reinsurance underwriting structures at Brit also assist when losses hit the company as well.

Brit reports some of this in its half-year report, although it’s important to note it’s not necessarily indicative of the returns of any one of its ILS or third-party capital backed vehicles.

Across third-party structured vehicles Sussex Capital and the Versutus II reinsurance sidecar, Brit’s third-party investors seem to have shared in $0.7 million of underwriting vehicle related losses in the first-half of 2020.

Some of this appears likely to have come from attritional losses, rather than major events, as third-party investors took a $0.6 million share of attritional losses in the first-half for Brit.

However, it also appears third-party investors benefited from $0.9 million share in reserve releases during the period as well.

Brit has reported a a near 6% increase in premiums written in the first-half of the year, which will also reflect any growth achieved by its Sussex Capital and Versutus II ILS structures.

Rates are rising faster than this, which is positive for the profitability of the business as a whole, with Brit reporting premium rate increases of 8.2% for H1 2020, which is almost double the rate reported for H1 of 2019.

Covid-19 losses did drive the firm to an underwriting loss for the period, which was to be expected. But excluding the pandemic impacts Brit’s underwriting was profitable, and the attritional loss ratio was down on the prior year as well.

The upshot was a loss after tax of $227.4 million for the first-half for Brit, driven by $127.9 million of Covid-19 losses booked in the period and an investment loss of $120.3 million.

The capital partner relationships that Brit has developed behind its Sussex and Versutus ILS vehicles are increasingly important and likely to prove even more so in the hardening catastrophe market we see today.

We’d imagine Brit has faced the same challenges as everyone else in ILS when it comes to raising fresh third-party capital through the first-half, but as we move forwards it’s likely the company will look to increase the size of these structures over time.

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