Primary insurance and reinsurance group Chubb Ltd. dramatically increased its cessions of reinsurance premiums to total-return vehicle ABR Reinsurance Ltd. by 144% in 2016, ceding $288 million during the full-year.
ABR Reinsurance Ltd. is Chubb’s captive or self-reinsurance vehicle, which it established in 2015 after an $800 million capital raise as a third-party investor backed, joint-venture reinsurer, with investment bank Blackrock providing a more active investment management strategy to deliver the total-return.
The strategy benefits Chubb in a number of ways.
It enables the insurer to retain more profit from the business it underwrites, while generating a higher return for that business through the total-return investment strategy and avoiding paying fees to cede that risk into the open market through a normal reinsurance renewal.
So it’s no surprise to hear that the insurer is making increasing use of ABR Re, dramatically ramping up the premiums ceded to the total-return reinsurance vehicle over the course of 2016.
In 2015, Chubb ceded $115 million of reinsurance premiums to ABR Reinsurance Ltd. and recognised ceding commissions of $30 million in the year.
In 2016 the amount of reinsurance premiums ceded to ABR Re jumped by an impressive 144%, to $280 million, while the commissions more than doubled to $66 million.
That’s an increasingly significant chunk of Chubb’s underwriting business that is working harder for the company, helping it to extract more of the risk premium from the business it has ultimately underwritten.
The amount of reinsurance recoverable on losses and loss expenses that Chubb has via ABR Re also jumped in 2016, from $82 million at the end of 2015, to $148 million at the end of last year. Reinsurance premium payable increased significantly, from $6 million for 2015 to $53 million, which is possibly down to full-year reporting.
ABR Re enables Chubb to realise more of the value it provides in underwriting risks, rather than giving it away in the third-party reinsurance process. At the same time the investment return generated by Blackrock ensures the risks ceded to ABR Re work harder, generate more profit which Chubb benefits from through its ownership stake and profit share.
The insurers stake in ABR Re is 11% and the value of this increased from $94 million to $97 million during 2016, also generating increased value for Chubb.
So ABR Re remains an efficiency and value play for Chubb, making its reinsurance cessions cheaper, its underwritten risk work harder, adding a total-return element, generating underwriting fees, commissions and profit share, all the while extracting more profit from the intellectual capital the insurer uses in its upfront underwriting.
As a non-public facing reinsurer, ABR Re only takes risk from Chubb, it’s also a good strategy for the investors backing the vehicle, as it aligns them with Chubb’s underwriting and Blackrock’s investment, while helping them too to benefit from the added efficiency it creates for Chubb’s business.