Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Brit’s third-party capital investors take fewer losses, more income in 2020

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Third-party investors participating in the underwriting of specialty insurance and reinsurance player Brit Ltd. have shared in fewer major losses, while taking a greater share of income through these activities in 2020, than in the prior year.

brit-logoBrit reported its results this morning and the use of third-party reinsurance capital from investors and insurance-linked securities (ILS) structures is increasingly embedded within the firm’s business activities.

The company has somewhere over $440 million of investor backed capacity managed across its range of third-party capital activities, across its Versutus collateralised reinsurance sidecar, its Sussex Capital collateralised reinsurance fund platform and its Syndicate 2988 at Lloyd’s.

A number of important initiatives in recent years have helped Brit expand these activities, not least the launch of an ILS fund specifically to back its syndicate at Lloyd’s for the 2020 underwriting year.

With third-party reinsurance capital a key strategic lever for Brit, it’s interesting to see that the company shared fewer losses with its investors in these vehicles in 2020.

In 2018, a year of heavier catastrophe loss activity, Brit shared $17.7 million of its major losses with third-party investors, but in 2019 that figure fell to just $3.2 million.

In reporting its results this morning the company reported that its third-party investors only took a $1.6 million share in its major losses during 2020.

This is interesting, as Brit’s major losses for 2020 excluding COVID-19 were actually more than double the figure seen in 2019.

But, with 2020 a year of frequency and smaller catastrophe events, such as the US hurricane landfalls, it’s possible that not as much of Brit’s third-party capital supported underwriting became exposed.

As usual, it’s not broken out how much of the losses fell to the individual buckets of third-party capital at Brit, so we can’t tell fell how much fell to the insurance-linked securities (ILS) vehicles specifically.

But the reduced share of losses taken by third-party investors in 2020 reflects what appears to have been a more profitable year for the investors backing the Versutus and Sussex Capital ILS vehicles in 2020.

This is also borne out in the reported figure for third-party investors share in Brit’s underwriting result during 2020, which came out at $6 million for the year, up on 2019’s $2.6 million.

This reflects some of the returns generated and delivered to investors in Brit’s ILS and collateralised reinsurance activities under Versutus and Sussex.

After a better year of results in 2020 and with reinsurance rates having risen, we suspect Brit’s third-party capital backing for the Versutus sidecar and Sussex Capital ILS fund platform will likely have risen further for 2021.

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