Cortina shows another avenue for third-party capital to enter the reinsurance market: Evercore ISI

A new report from Evercore ISI has outlined that the recently announced Aon and Blackstone reinsurance facility at Lloyd’s, Cortina, offers another alternative for third-party capital to be deployed into the reinsurance market without having to endure some of the exit risk mechanics.

The much-discussed reinsurance Cortina syndicate 1956 was launched last week by broker Aon and funds associated with asset manager, Blackstone.

At the same time, we also learned that the London Bridge 2 insurance-linked securities structure was also used towards funding the new syndicate.

Cortina syndicate 1956 is expected to begin underwriting from January 1st, 2027, and is set to provide dedicated, multi-year reinsurance capacity to clients from institutional capital, adopting a conventional lead/follow approach.

Global re/insurer QBE will also serve as managing agent of Cortina syndicate 1956, and be responsible for the syndicate’s underwriting and governance.

Recall that we also reported last week that Cortina is set to bring $500 million of capital and write around $1.6 billion of premium.

While this is small in comparison to the estimates $400 billion to $450 billion premium reinsurance marketplace, Evercore’s analysts explain in their report, that they expect it to scale in the future as other brokers launch similar vehicles that will serve to act as another softening force in the reinsurance pricing environment that already has excess capital.

“However, we think Cortina and similar structures in the future could be a bit more disciplined than capital that entered in the past thru reinsurance start-ups that weren’t responsible underwriters,” Evercore ISI’s analysts explain.

“Despite this, it is a negative for Reinsurers as it introduces more capacity to the finite risk pool and could open the way for more structures at other brokers with other asset managers,” analysts continued.

While alternative capital, so that deployed through insurance-linked securities (ILS) and related collateralized structures, is small, estimated at around 3% of global premium, analysts emphasise that it holds potential for growth and for more pressure to be put on traditional reinsurers, although that market’s discipline has surprised Evercore ISI.

For Aon, analysts stated that they expect Cortina to serve as a modest organic growth tailwind on volumes and market share, as it brings additional capacity at better pricing and on additional administration fees.

As mentioned, analysts also suspect rival brokers to launch competing structures with other asset managers.

“It will be interesting to see how much capital follows suit as we suspect other brokers launch similar structures. While third party capital has entered in the past via reinsurance startups, it appears like this is another avenue for that capital to enter without the exit risk,” analysts said.

Large asset managers have increasingly shown that they prefer more flexible mechanisms to access reinsurance linked returns than standing up new equity backed companies, it’s expected this trend will continue developing often borrowing from ILS market infrastructure techniques.

Concluding: “It is yet another sign of the softening market as more capacity enters which will weigh on pricing even if it is likely somewhat more responsible than start-up reinsurers in past cycles. We haven’t seen a noticeable impact on revenue growth at the brokers from facilities in the past but instead view these as ways to support revenue growth in more challenging pricing environments.”