At the end of 2016 total return reinsurance vehicle KaylaRe Ltd., launched by Enstar, Hillhouse Capital Management, and Stone Point Capital recently, already had $350 million of investments in a fund managed by Hillshouse, thanks to reinsurance transactions with Enstar subsidiaries.
Enstar launched KaylaRe Ltd. as a total return, or investment oriented, reinsurance strategy, with a $620 million equity capital raise, including $300 million from Enstar itself, $270 million from funds managed by Hillhouse Capital Management, Ltd. and $50 million from funds managed by Stone Point Capital LLC.
Enstar is the underwriting manager for KaylaRe, ceding business to it from its various subsidiaries, while Hillhouse is the primary investment manager to the reinsurer, as well as a range of other investment managers with who KaylaRe will engage.
As you’d expect, the asset side of the business is going to be key for KaylaRe’s success, particularly as the business it will underwrite via Enstar companies will consist of access to its run-off portfolios and retroactive type reinsurance business, which often has a longer time-scale to realise profits.
KaylaRe will also be market-facing as well, Enstar had said, but again that takes time to get out and become an accepted member of reinsurance panels, so the access to risk premiums and assets through Enstar and subsidiaries has been instrumental in getting KaylaRe started.
And what a start KaylaRe has had thanks to this access to risk from across the Enstar group.
The total return reinsurer entered into 35% reinsurance quota share agreement with StarStone, Enstar’s global insurance underwriting subsidiary, at launch (the KaylaRe-StarStone QS as it calls it).
Under this quota-share StarStone ceded $117.6 million of premium earned, $75.7 million of net incurred losses and LAE and $42.5 million of acquisition costs to KaylaRe in the year ended December 31st 2016.
Additionally, other Enstar subsidiaries ceded more business to KaylaRe, with non-life run-off subsidiaries ceding $177.2 million of loss reserves to KaylaRe during the year ended December 31st 2016.
The premium float from the quota-share and these reserves will all have been put to work by Hillhouse Capital Management and any other investment managers appointed to manage the KaylaRe portfolio.
As of the end of 2016 KaylaRe had investments in a fund managed by Hillhouse with a fair value of $350 million, Enstar’s results reveal.
Enstar benefits greatly from the cessions to KaylaRe, providing it with an option for moving premiums and reserves around within its own group, a source of reinsurance backed by third-party capital and ultimately adding capital efficiency to the group’s activities.
KaylaRe already represents more than 10% of Enstar’s reinsurance recoverables balance, with $242.1 million reported on its balance-sheet for the end of 2016. This is a significant chunk of Enstar Group’s reinsurance arrangements which are now made more efficient, also earning the group fee income and adding to the Hillhouse managed KaylaRe float (which ultimately earns Enstar a share in investment return as well).
Already in the short time KaylaRe was up and running in 2016 Enstar has recorded fee income as well, citing a near $4 million increase in run-off management fees and commissions as largely down to KaylaRe, with another $5.1 million earned for additional management services provided to KaylaRe and accounted for in the 2016 financial year.
So KaylaRe was already delivering value to Enstar and a significant chunk of investable assets in the form of float to Hillhouse by the end of 2016, having only been established a few short weeks.
As the total return reinsurance strategy scales up and KaylaRe takes on more premiums and reserves from Enstar subsidiaries, which will increase the float that can be managed by Hillhouse et al, the contribution back to Enstar’s results will increase.
As a result Enstar will be able to enter into more and larger run-off type deals, using KaylaRe as a form of retrocession and capital support, while it will also offer a companion underwriting balance-sheet for StarStone and other direct writing subsidiaries.