Kelvin Re & Humboldt Re, ILS backed reinsurers, affirmed despite losses


Kelvin Re Limited and Humboldt Re Limited, the two rated reinsurance vehicles managed by and backed by capital from the Credit Suisse Insurance Linked Strategies Ltd. team, have both had their ratings affirmed by A.M. Best despite falling to losses due to recent catastrophe events.

Kelvin Re, which is backed by an investment from the Abu Dhabi Investment Council, is expected to report a combined ratio of 150% or more for 2017 following the impacts of recent catastrophes including hurricanes Harvey, Irma and Maria.

Humboldt Re, which is backed solely by capital from Credit Suisse managed ILS funds, is anticipated to have a combined ratio of over 130% for 2017, as the same catastrophes hit this reinsurer, albeit to a different degree.

Both of the reinsurers have had their A- financial strength and credit ratings affirmed by rating agency A.M. Best though, which cited both of the vehicles very strong balance sheet strength, neutral business profile, adequate operating performance and appropriate enterprise risk management (ERM) framework.

Kelvin Re has a more natural catastrophe focused underwriting portfolio and also operates a non-traditional investment strategy, with almost 40% of its investments allocated to blue-chip hedge funds.

Humboldt Re has a broader underwriting mix, although still a natural catastrophe focus, we understand, which could reflect the difference in combined ratios. Humboldt Re also has a slightly larger portfolio as well, which could have helped it reduce the volatility in its losses.

For the 2017 underwriting year Kelvin Re is expected to write around US $220 million of premiums, while Humboldt Re will write a little more at CHF 240 million (nearer $245m).

For Kelvin Re, the non-traditional, hedge fund focused investment portfolio is expected to slightly offset the expected losses, as the hedge funds it allocates to are exhibiting strong performance in 2017.

But both vehicles will report technical and operating losses for the year following the major U.S. hurricane losses,
which is not surprising given their property catastrophe focused underwriting strategies.

The benefits of the rated nature of these reinsurers to the Credit Suisse ILS team and the investors backing these vehicles will become clear as they proceed towards the renewals, as they will not be exposed to trapped collateral in the same way as other ILS fund and sidecar strategies, perhaps positioning both Kelvin and Humboldt well to achieve further growth in 2018.

On Humboldt Re and Kelvin Re, A.M. Best noted that, despite the losses suffered, “Prospective balance sheet strength is expected to remain very strong as the company(s) expands its portfolio.”

On Kelvin Re, the rating agency says its, “Balance sheet strength is very strong, as a result of the strongest level of risk-adjusted capitalization and a flexible retrocession programme focused on collateralised funds, which minimises counterparty credit risk.”

Kelvin Re, having the non-traditional investment strategy, does have to meet more stringent capital requirements though, but “The company maintains a high level of capital and surplus, which stood at USD 662 million at the end of 2016,” A.M. Best said.

Kelvin also has additional financial flexibility thanks to a letter of guarantee of US $200 million from its sole shareholder, the Abu Dhabi Investment Council Middle Eastern sovereign wealth fund, which further insulates it from the potential for negative impacts on the underwriting and investment side of its business.

Both of these rated reinsurance platforms provide the Credit Suisse ILS team with platforms for growth through the cycle, while their backers benefit from the reinsurance linked returns.

As the two rated reinsurers gain a an increasing profile in the reinsurance renewal market they should be able to underwrite  incremental business, allowing the ILS manager and the investors backing them to increase commitments to support the strategy.

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