Insurance-linked securities (ILS), reinsurance and transportation investment manager, Hudson Structured Capital Management Ltd., conducting its re/insurance business as HSCM Bermuda, is pleased with the values that are on offer across many different sectors as the market moves through the second-quarter of 2019.
After starting in June of 2016 with approximately $260 million of assets under management (including committed capital) (AuM), Hudson Structured, across its reinsurance strategies, has $1.4 billion of AuM as at the start of April 2019. It has an additional $300 million in its Transportation strategy.
HSCM Bermuda invests across the insurance and reinsurance risk landscape, allocating investor-backed capital to a broad range of re/insurance-related investment opportunities.
Artemis recently spoke with Mike Millette, Managing Partner, who explained that the company’s ethos of thinking about risk and return across the entire spectrum, includes both risks and services.
“I am happy to say that we are moving through the second quarter of 2019 very pleased with the values that are available across many different sectors, including distribution and claims services, life and health, and parts of natural catastrophe – although it’s important to be selective there. For the first time, there is value appearing in certain segments of specialty property,” said Millette.
In recent months, the biggest change to the company’s strategy is that it’s been making material allocations into specialty property, driven by its continued desire to seek the best balance of risk and return.
“When we are allocating newly or incrementally into a sector, it means that values – spreads relative to expected losses – are appearing that are comparatively favourable. Now, that is saying a lot, because at the moment, the values available are quite good in other sectors.”
“Value generally appears in a subsector because of some large force, not some minor quirk. Two forces have been impacting specialty property – the purge at Lloyds and the hardening of cat retro.”
He added that years of bad results, a sudden weakness in the M&A market, and the actions of the Lloyd’s corporation itself are all driving definitive change in the London market. As this continues, Millette expects continued value creation.
HSCM Bermuda’s strategy means that, when compared with most of its peers, it doesn’t have the luxury of only being able to focus on large nat cat events.
“That said, it’s been a strong year so far on the risk front. And that’s been true in natural cat, it’s been broadly true in other lines of business through the first-quarter, as far as we know. And so, after two difficult years, investors would welcome good returns,” said Millette.
Part of the company’s growth, according to Millette, arises from investor desire for a broader-based investment strategy.
Regarding the renewals, any material increase in rates will enable the company to allocate accordingly, although this would be unplanned for and an unexpected grace.
“We’re excited. I think the ILS sector tends to be very focused on cat, so it gets involved in narrow games, like the chess match unfolding between markets, the Florida CEOs and the brokers, around supply and demand of capacity.”
“It’s fascinating for us to watch – we have an unusual perspective on it since we have also been one of the leading investors in the Florida companies themselves. But I’m glad that I wake up every day with a broad investment mandate, because there are a lot of great values across the whole re/insurance space regardless of how that game ends – and if it ends properly we will be there in scale.”
“Running a strategy this broad involves non-trivial challenges. It’s not just an issue of telling the brokers to bring you more cover. Our sourcing effort in distribution, finance, life, health and run-off, each involve a fairly separate methodology and cast of characters. The way we structure deals in other sectors is also fairly different. We have 12 senior team members. We have two former cat modelers and six actuaries spread across the firm.”
“Nothing is simple, and remember that to run a company like this, one central principle of our business is we respect the magnitude of the mandate that we ask for from our LPs,” said Millette.
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