The combined and enlarged insurance and reinsurance group that emerges out of XL Group’s acquisition of Catlin, announced earlier today, will become a “perfect partner for investors” in the ILS and third-party reinsurance capital arena, CEO McGavick said.
Speaking just now on an analysts call to discuss the deal, Mike McGavick, CEO of the soon to be larger XL Group, said that the greater scale achieved by acquiring Catlin positions the larger XL that comes out of the deal to capitalise on the interest that institutional investors and other sources of third-party capital show in insurance and reinsurance risks.
Most importantly, McGavick explained, the combined firm does not have to do anything unless it wants to. It does not need to use third-party capital to lay off its own risks to investors unless it is attractive and desired. McGavick feels that the deal makes XL more attractive to investors in the ILS space and this gives the firm an edge in its opportunities in this arena.
However, McGavock noted that the conversations with alternative capital has changed in the last year. It’s not clear that ILS investors are seeking long-term partnerships and that “smart players in alternative capital know that underwriting matters.”
What really matters is giving third-party capital access to attractive pools of risk, and the enlarged XL Group will be in an even better position to do this as a top-ten reinsurer and top-three property catastrophe reinsurer, McGavick explained.
Investors are looking for proven track records, McGavick explained, with access to meaningful risks through the partners they choose to invest with. XL feels it is improving its position here, which should make it more attractive to these capital market investors.
The combined XL – Catlin entity becomes a “perfect partner for investors” in the ILS and third-party capital space, McGavick declared. “You want to be a leader when there’s change like this,” McGavick said referring to the alternative capital trend, “this deal positions us as one,” he continued.
The acquisition of Catlin does creates a more powerful competitor in the property catastrophe reinsurance market of XL Group, giving it better access to risk and likely a preferred position as a risk market counterparty. How this greater scale in reinsurance positions XL and how the enlarged XL Group shares this opportunity with third-party or ILS capital will be fascinating to watch.
Also read from earlier when the deal was announced: XL buys Catlin for £2.79B. Makes XL more attractive to third-party capital.