The Guernsey based, Credit Suisse Insurance Linked Strategies supported reinsurance company Kelvin Re Limited has been acquired by New York headquartered financial services group Cowen.
Kelvin Re took its financial support through insurance-linked securities (ILS) investors and funds under the management of Credit Suisse Asset Management’s specialist ILS investment unit.
But Kelvin Re was solely backed by investments made by the Abu Dhabi Investment Council, a sovereign wealth investor with a liking for reinsurance-linked returns.
Kelvin Re suffered relatively significant losses through consecutive years of natural catastrophe events, which led to its ultimate shuttering as its investor took the strategic decision to place the company into run-off.
Earlier this year, rating agency AM Best said that Kelvin Re’s ratings remained under review with negative implications, with the main reason being the fact a sale or disposal of the reinsurance firm is anticipated.
Now, in another AM Best update, the sale of Kelvin Re to US financial group Cowen has been revealed.
Today, AM Best downgraded Kelvin Re Limited’s Financial Strength Rating (FSR) to B+ (Good) from A- (Excellent) and Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb-” (Good) from “a-” (Excellent).
At the same time, the rating agency said it has maintained an under review status on the ratings and revised the implications status to developing from negative.
These rating actions follow, “the recent acquisition of Kelvin Re by Cowen, a U.S.-based multinational financial services group headquartered in New York, NY,” AM Best explained.
In addition, the rating moves reflect potential “drag due to the financial strength of its new parent company and Kelvin Re’s reduced level of financial flexibility due to its new ownership,” AM Best continued.
Adding that there is also “uncertainty regarding Kelvin Re’s future strategy, as well as the degree of independence it has from Cowen.”
AM Best said it expects to resolve the under review status once it has analysed the company more fully, including its prospective business plans.
Interestingly, AM Best also noted that “future plans for new business are unknown at present,” suggesting the business plan for Kelvin Re is perhaps not in the rating agencies hands as yet and this reinsurance acquisition by Cowen may be very recent news.
Cowen already undertakes some insurance and reinsurance related activities and has a reinsurance entity in Luxembourg, Cowen Reinsurance SA.
In recent year’s, Cowen has invested into its insurance and reinsurance operations, so it’s possible Kelvin Re is seen as a new platform for that segment of Cowen’s operations, to build on its sourcing of reinsurance related income.
Kelvin Re has been in run-off since December 2020 and AM Best notes that its short-tail property catastrophe reinsurance book is “expected to develop positively over the coming years.”
That might suggest an acquisition to run-off the Kelvin Re book could also have been an attractive addition for Cowen, leaving it with a platform to underwrite through as well.
AM Best elaborated, saying, “The company’s post-acquisition capital base of approximately USD 400 million is expected to support the run-off of its business adequately.”
Some additional insight was provided, with AM Best explaining that Kelvin Re’s investment portfolio is now concentrated towards a loan with Cowen, its new owner.
“However, the future investment strategy is expected to carry lower risk and involves holding surplus assets in equities and U.S. treasuries. Assets backing Kelvin Re’s reserves are invested in low risk, liquid investments,” AM Best added.
At this time, we don’t have a clear understanding of the strategy behind Cowen’s acquisition of Kelvin Re, but it will be interesting to learn whether the financial services specialist has ambitions to grow into the reinsurance space.