Kinesis raises collateral for reinsurance underwriting outside renewal cycle

Kinesis Capital Management, the third-party capital management unit of global provider of specialty insurance and reinsurance products Lancashire Holdings, has executed its first ‘special draw’, raising capital from investors for collateralized underwriting.

The ‘special draw’ is effectively an opportunistic capital raising from third-party investors, which Kinesis said it would undertake if any collateralized reinsurance underwriting opportunities arose outside of the usual reinsurance renewal cycle.

For this first ‘special draw’ investors were invited to subscribe in Kinesis Holdings I Limited (“Kinesis Holdings”) to enable its subsidiary Kinesis Reinsurance I Limited (“Kinesis Re”) to underwrite a fully collateralised reinsurance contract.

This follows a successful January reinsurance renewal, which saw Kinesis Capital Management underwrite its first tranche of multi-class reinsurance agreements with combined aggregate limits of over $250m. The collateralized reinsurance contracts underwritten incepted on or around the 1st January 2014.

By having the flexibility to raise capital to support any opportunities that arise around the typical underwriting cycle, Kinesis can respond quickly to clients needs and also find attractive business to write. Reinsurance buying habits have changed in recent years, meaning that some large cedents renew their core reinsurance programs in-line with the renewal cycle, but then chose to top it up with opportunistic purchases as market conditions allow.

Darren Redhead, KCM’s Chief Executive Officer, commented; “Our stated strategy is to allow investors access to the collateralised reinsurance market on a regular and opportunistic basis. I am very pleased that within a week of negotiating an indicative order with a client, Kinesis had secured firm funding commitments from its existing investors.”

Being able to respond to a clients needs within a week is an impressive effort from a collateralized reinsurance provider. Often capital raising happens in bulk and then capacity is fully deployed by managers needing to meet allocation targets. For Kinesis, having this flexibility should enable it to support clients needs better, join its parent Lancashire Holdings in providing collateralized cover to support the core Lancashire product and to take opportunities which others may not be able to access so easily.

It’s good for investors too, as it means that Kinesis can bring specific opportunities to them, which sometimes may be very attractive. It also means Kinesis could react very quickly to any sort of market dislocation which could enable investors to benefit from improved pricing or rates.

Redhead continued; “This deal demonstrates the flexibility of the new Kinesis facility and our ability to move rapidly in aligning our investors’ capital with the bespoke reinsurance needs of our clients. Given the limited size of this first special draw we were able to work with our advisors to fulfil demand with our existing investors but expect to be able to further expand our panel of investors later in the year in preparation for the mid-year reinsurance renewal season.”