Credit Suisse backed Arcus 1856 premiums rose 58%, loss narrowed in 2018

Arcus Syndicate 1856 at Lloyd’s, which is backed by third-party funds under the management of the Credit Suisse insurance and reinsurance linked investment strategies team, grew its gross premiums written by an impressive 58% in 2018.

At the same time the Arcus 1856 syndicate narrowed its losses, despite the still heavy catastrophe year, booking a near $6.6 million loss for the underwriting year, an improvement from the $7.7 million loss suffered in 2017.

Arcus Syndicate 1856 continues to follow its strategy to underwrite business largely from individual classes of business, having said that for 2019 it would increase its focus on property lines of insurance.

That strategy continues, as the syndicate seeks to source its own insurance and reinsurance business, which has now led to the non-renewal of the whole account net quota share it had in place with Barbican syndicate 1955 from its launch.

The syndicate, which underwrites risks solely on behalf of funds under the management of the Credit Suisse Insurance-Linked Strategies (ILS) division, launched with the support and management of Barbican and the quota share was a key driver to help build a portfolio for the business.

Now, the syndicate has some scale, having grown significantly again in 2018, while the ambition is to underwrite business selected specifically for the needs of the investors backing the syndicate, we’d imagine, meaning the quota share was always likely to become less of a contributor.

Claims incurred rose significantly in 2018 for the syndicate, reaching $92.3 million, up from $56.6 million in 2017.

But the added scale and much higher premiums earned, as well as much lower expense ratio, all added up to a smaller loss being experienced.

While the claims ratio was elevated to 87.4%, compared to 78.4% in 2017, the expense ratio of 18.8% in 2018 was much lower than the 33.3% reported for the prior year.

The end result was a combined ratio of 106.2% for 2018, much lower than the 111.7% experienced in 2017.

The Credit Suisse ILS backed syndicate had a stamp capacity of £104.2 million in 2018, but that is likely to have risen for 2019 as the underwriters target writing more individual class risk with less coming from the quota share.

The business mix written will still spread across property and specialty insurance and reinsurance, which are underwritten for capital sourced from Credit Suisse’s Iris Low Volatility and Balanced ILS fund strategies, as well as via its Guernsey based Humboldt Re reinsurance vehicle.

In 2018 the syndicate experienced the strongest underwriting growth in its energy, space, cyber risks, third-party liability and property insurance books, while its reinsurance book remained relatively static.

The whole account quota share with Barbican’s syndicate actually shrank in 2018, to a 9.72% cession compared to 15.4% in 2017, showing that this side of the business was decreasing in importance for Arcus 1856.

For this year the focus will be on developing the direct insurance business, while also optimising the reinsurance buying for the syndicate, to ensure stability in profits wherever possible.

The level of premium growth experienced by the Arcus 1856 syndicate was impressive in 2018, especially as much of the additive risk business was from new lines it began to underwrite last year.

As it looks to become wholly reliant on writing insurance and reinsurance business directly, rather than through the quota share from Barbican’s syndicate, it will be interesting to see if the growth can continue or whether it tails off a little in 2019.

A year with fewer major catastrophes could see the syndicate delivering impressive returns to the Credit Suisse ILS vehicles that back it with capital, especially so as its diversification expands which will also have the effect of helping to moderate its losses in major catastrophes years too.

Arcus 1856 considers itself a “bridge between traditional re/insurance and capital markets.”

The ongoing development of the strategy is clearly evidencing this and the efficiencies shown by the significant expense reduction (if it can be sustained) suggest being part of Lloyd’s could well pay off for Credit Suisse.

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