Credit Suisse ILS run reinsurer Kelvin Re takes $350m capital injection


Kelvin Re Limited, a rated reinsurance company run by the Credit Suisse Insurance Linked Strategies Ltd. team and backed by investments from the Abu Dhabi Investment Council has taken an injection of capital to strengthen it in 2019.

kelvin-re-logoGuernsey domiciled Kelvin Re underwrites short-tail property catastrophe and specialty lines reinsurance, with business sourced through the origination capabilities of Credit Suisse’s Insurance-Linked Strategies team, one of the largest ILS fund managers.

The Credit Suisse ILS team manage Kelvin Re on behalf of its sole backer the Abu Dhabi Investment Council and the reinsurer also operates a more alternative investment strategy as well, allocating some of is assets to hedge fund strategies managed by specialist investment managers.

Given the short-tail property catastrophe reinsurance focus, Kelvin Re was hit by global loss events in 2017 and 2018, while it is also expected to take its share of the more recent 2019 catastrophe losses around the globe.

Despite this, rating agency A.M. Best has affirmed the reinsurance firms Financial Strength Rating of A- (Excellent) and its Long-Term Issuer Credit Rating of “a-“, saying that the outlook for the company remains stable.

Given its relatively short history in the market, having originally been launched in 2014 to begin underwriting in time for 2015, Kelvin Re has suffered a number of negative years.

However, A.M. Best said these losses are simply reflective of the business model and remain within Kelvin Re’s risk appetite and while continued underperformance could be an issue the rating agency expects the reinsurer to generate positive returns in more benign catastrophe loss years.

Kelvin Re remains underpinned by strong capital and what A.M. Best terms a “dynamic” retrocession program.

Maintaining a relatively high level of capital compared to its exposures, A.M. Best notes that Kelvin Re has recently strengthened this even further.

Kelvin Re has been bolstered by the addition of another US $350 million of capital, which A.M. Best said was in the form of additional hedge fund assets.

With this capital injection, Kelvin Re’s capital reached US $989 million at September 2019, the rating agency said.

The additional capital is expected to be used to support Kelvin Re’s strategic objectives, which likely means increasingly expansive underwriting (the reinsurer uses relatively low leverage so capital is important) as well as boosting its investment portfolio as well.

Slightly offsetting the positive outlook for Kelvin Re is volatility in its catastrophe reserves related to loss creep, A.M. Best said.

In addition, the more hedge fund like, or total return, investment strategy also has he potential to add volatility, but A.M. Best notes that this has been toned down in 2019, as Kelvin Re’s investment portfolio was further diversified this year which should reduce volatility in its investment performance going forwards.

Kelvin Re remains an innovative structure, designed to enable a larger investor to operate in the reinsurance market with the support and guidance of a leading ILS fund manager in Credit Suisse. This addition of capital can only help it to scale and enhance its relevance with ceding clients at renewals.

A.M. Best also commented on the other Guernsey domiciled reinsurance company operated by the Credit Suisse ILS team, Humboldt Re.

Humboldt Re is backed solely by capital from the insurance-linked securities (ILS) funds managed by Credit Suisse Asset Management (CSAM) and underwrites short-tail property catastrophe and specialty lines reinsurance, similar to Kelvin Re.

Humboldt Re has not had the capital injection Kelvin Re has benefited from and A.M. Best warns that its risk-adjusted capitalisation could decline at year-end 2019, on an expected operating loss and higher underwriting risk requirements, but the rating agency said it will remain at the strongest level still.

A.M. Best affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” of Humboldt Re Limited, saying that both ratings have a stable outlook.

These reinsurance platforms have given the Credit Suisse ILS team a significant amount of benefits through the challenging loss years the market has faced recently, allowing it to deploy capacity through rated balance-sheet vehicles rather than fully collateralised.

Of course, Credit Suisse ILS has now launched a Bermuda reinsurance vehicle, Bernina Re Ltd., as well, providing it with even more options for supporting global clients looking for highly secure reinsurance capacity.

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