Kelvin Re Ltd., the rated reinsurance vehicle established and operated by Credit Suisse Asset Management’s (CSAM) ILS team, has underwritten over $120 million of gross natural catastrophe reinsurance premiums in the first nine months of 2015.
Kelvin Re was launched in late 2014 by CSAM, as the insurance-linked securities (ILS) and reinsurance linked asset manager established its first rated reinsurance vehicle in Guernsey. Kelvin Re, backed by an investment from the Abu Dhabi Investment Council, operates with a hedge fund style asset strategy as well, making it a vehicle that is efficient and can enhance returns using both sides of the balance-sheet.
Rating agency A.M. Best affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Kelvin Re Limited on Friday, both with stable outlooks, giving some additional insight into the reinsurance vehicles first year of operation.
Over the course of its first year Kelvin Re has constructed a globally diversified portfolio of natural catastrophe reinsurance contracts, whilst also maintaining a strong level of risk-adjusted capital, A.M. Best said.
The reinsurer has underwritten over $120 million of gross reinsurance premiums so far in 2015, leveraging the distribution reach and origination of the CSAM ILS team. A.M. Best also said that Kelvin has established a comprehensive ERM framework and a flexible retrocession program, using quality reinsurance counterparties, which will help it to continue to move towards achieving its medium-term plan.
A.M. Best notes that the soft reinsurance market “increase the expected volatility of operating earnings, which results in enlarged execution risk.”
As well as that, Kelvin Re’s investment strategy, which sees around 50% of assets allocated to blue-chip hedge funds, does provide increased investment risk and a potential reduction in liquidity.
However, in the currently challenging, soft and competitive reinsurance marketplace, Kelvin Re has an edge given its efficient business model, service provider driven with origination and deal-flow from the CSAM ILS unit, plus the additional return on the investment side helps to offset the market challenges and softer pricing to a degree.
A.M. Best notes that positive rating actions could be taken if Kelvin Re “continues to successfully execute its business plan whilst maintaining strong levels of risk-adjusted capitalisation.” That would be even more positive for Kelvin and for CSAM’s ILS team, as the better the rating the greater the access to business counterparties will be.
CSAM’s ILS team benefits from having a rated platform to access risk, providing some leverage as well. For the capital providers backing Kelvin Re, the strategy brings access to risk returns, as well as the higher investment return targets from the hedge fund allocations.
The Credit Suisse ILS team launched its second rated reinsurance vehicle, Humboldt Re, just last month, demonstrating its liking for the flexibility these platforms provide and the integral part they are expected to play in the ILS managers strategy going forwards.