Brit raised third-party capital funds in 2019, shared fewer losses with investors

Specialty insurance and reinsurance player Brit Ltd. successfully raised new capital for its range of insurance-linked securities (ILS) funds and structures in 2019, while investors had a better year as well as the company shared much fewer losses with them.

In reporting its results this morning, Brit’s senior executive team explained that third-party capital and insurance-linked securities (ILS) remain key strategic levers with the business.

The company expanded its ILS activities during the year, raising fresh capital within the sidecar it operates and its ILS fund platform, also launching a new ILS fund to directly support its syndicate activities at Lloyd’s.

Matthew Wilson, the Group CEO of Brit, said the company is, “Proud to have worked with Lloyd’s to be the first Lloyd’s Syndicate to use ILS capacity to back our capital at Lloyd’s, a landmark achievement.”

Of course, it wasn’t the first use of ILS capital to back a syndicate at Lloyd’s, that has been done for a number of years. It’s more the mechanism with which Brit has enabled its Bermuda domiciled Sussex Specialty Insurance Fund, in taking on whole account exposure to Brit’s Syndicate 2988 using a corporate member vehicle, which is a first it seems.

For 2019 Brit had success in terms of bringing new investors into its third-party capital vehicles, with assets rising to US $440 million across its range of third-party capital management strategies.

“For 2019, Brit’s total managed capacity across our third-party capital vehicles, Versutus, Sussex Capital and Syndicate 2988 increased to US$440m. The renewal and expansion of our ILS capacity, alongside the planned growth in gross written premium for Syndicate 2988, continues our successful strategy of managing capital for third parties by offering access to Brit’s leading underwriting capabilities, deep client relationships and extensive distribution network,” CEO Wilson said.

The capital raising all happened at the beginning of the year for Brit, as it had already reached the $440 million of third-party assets managed across its Versutus collateralised reinsurance sidecar, its Sussex Capital collateralised reinsurance fund platform and Syndicate 2988 back last February, up from $400 million in 2018.

Wilson sees the potential for market opportunities, that could influence Brit’s use of capital and ability to raise more for these ILS vehicles.

“A number of indicators give us increased cause for optimism, including continuing rate increases, the withdrawal of market capacity from certain business lines and the measures taken by Lloyd’s to improve market competitiveness,” Wilson explained.

“Whilst the market is not without its challenges, our clear strategy of embracing data driven underwriting discipline and applying rigorous risk selection, coupled with innovative capital management solutions and continued investment in distribution, uniquely positions us to respond to today’s opportunities and challenges.”

Group CFO Mark Allan highlighted the impacts of catastrophe loss events, including “another year of windstorm events causing damage in the US and Japan” but he noted that “our balanced underwriting approach meant our losses were contained within expectations for the year.”

This was evident in how Brit shared its losses with its third-party capital investors in 2019.

In 2018, which was a heavier catastrophe loss year and one where loss creep was also more apparent in the market, Brit shared $17.7 million of its major losses with third-party investors, where as in 2019 that figure was just $3.2 million.

It’s not clear, due to accounting, how much fell to the ILS vehicles specifically, but the reduced share of losses borne by third-party investors suggests a more profitable year for those investors backing the Versutus and Sussex Capital ILS vehicles in 2019.

Third-party investors also benefited from a $2.6 million share in Brit’s underwriting result during 2019, reflecting some of the returns generated in vehicles such as Versutus and Sussex and delivered to the investors backing them.

Allan noted that, “The ILS market is going through a transitional period on the back of 2017 and 2018, with market loss activity highlighting different strategies, risk profiles and performance.

“Against this, Brit is well positioned, able to offer partners access to our attractive underwriting track record and distribution, alongside clear alignment in all of our third party capital vehicles, which we believe is critical.

“We remain committed to all our ILS ventures and focused on continuing to build on our track record of outperformance.

“We were delighted with the result of our fundraising activity in 2019, and welcome a number of new investors into our vehicles.”

He again highlighted the new Sussex ILS fund that enables investors to access Brit’s underwriting returns from Lloyd’s, which the company sees as a key opportunity to bring additional efficiency to its Lloyd’s operations using third-party capital that is more directly accessed.

“I believe our plans for 2020, underpinned by our wider strategy and discipline, position us well to maximise opportunities as they arise and allow us face the future with optimism,” Allan said.

For Brit, 2019 seems to have been a very positive year for its third-party capital and ILS operations, with an expansion in strategies, some new investors added and capital raised, and with fewer losses shared with the investors it should have stood the company in good stead for additional capital raising for 2020.

It’s likely the company has raised fresh capital for 2020 as well and we may find out in the coming weeks that the Versutus collateralised reinsurance sidecar has been renewed again and more assets added to the Sussex Capital ILS fund platform as well.

Jon Sullivan, Group Deputy Chief Underwriting Officer (CUO) and Mark Allan, Chief Financial Officer (CFO) at Brit, told us in an interview at the end of 2019 that the company’s collateralised reinsurance fund platform, Sussex Capital, received good support and increased allocations ahead of the January 1st renewals.

It will be interesting to see how much in assets the group added in time for 1/1.