Kinesis Capital Management, the third-party collateralized reinsurance arm of Lancashire Holdings, is seeing much more in the way of underwriting opportunities in the currently turning market, according to Alex Maloney, CEO of Lancashire.
We already knew that Kinesis had grown its assets under management by around 20% at the start of 2019, with that increased capacity having helped the asset manager grow its book at the January renewal.
But with the insurance and reinsurance market showing increasing signs of rationality and discipline, Maloney said that this is translating into more opportunities for Kinesis throughout the year so far.
Kinesis underwrites a multi-class, specialty and property catastrophe focused product, which is used as retrocession by major reinsurance firms.
As a result, after the heavy losses of the last two years, there was always a good chance its product set could find greater demand, which appears also to be a likely cause of the greater opportunities it is seeing.
Maloney said that after the last two years of losses the insurance-linked securities (ILS) sector is naturally receiving greater scrutiny.
However and despite this he explained that, while we may now have seen the first-half of the ILS story, in terms of the exponential growth witnessed in the last decade, “now you’re going to see the second half of the story.”
This second-half of the ILS market’s history will feature more questions being asked, with more governance and regulation, meaning that “you will see a slightly different alternative market,” Maloney said.
Fundamentally though, Maloney believes that capital will continue to flow, although he suggested that the broader insurance and reinsurance market needs to establish its base levels of return first, to support investor ambitions.
“I just don’t think returns have been high enough for the risks some people are assuming, and once losses happen, it is so much more obvious,” he continued.
“For me it is the inevitable consequences of that kind of loss pattern,” he said, referring to the last two years of catastrophe events.
“Maybe some investors haven’t had these type of losses before, never seen capital trapped exactly the way its has.”
But overall, Maloney explained, “Clearly ILS is here to stay, it will move forward, but I think in a slightly different form.”
Back to fundamentals though and Maloney strongly believes that underwriters have given up too much premium in recent years.
“It all starts with just charging the right risk premium for the risks you’re assuming,” he stressed.
The strategy at Lancashire and Kinesis has always been in this vein, taking opportunities as they come and meet the risk return appetite of the company and its capital providers.
Right now, with the market firming, Maloney says opportunities are becoming more abundant as a result.
“Kinesis is looking at much more new business than we have in recent years. We’re confident we’ll get more opportunities and then it’s all about matching the risk with the right capital,” he said.
He went on to note that, “The next six weeks is pretty material in terms of what goes on in Florida,” adding that there’s a bit of a standoff in the market right now it seems and that next quarter should be pretty interesting for Lancashire and Kinesis.
As a result, it will be interesting to see the next set of results, when we hope to regain more visibility of the contribution Kinesis is making to the Lancashire bottom-line.
We’re returning to Singapore for our fourth annual ILS market conference for the Asia region. Please register today to secure the best prices. Early bird tickets are still on sale.