Kinesis sees more opportunities and is ready to take them

Kinesis Capital Management, the third-party capital vehicle operated by Lancashire Holdings, has seen more opportunities in the market following the 2017 catastrophe events and is ready to capitalise on market conditions in 2018 and beyond, according to Darren Redhead.

Speaking with Artemis in the aftermath of recent catastrophe events and the January 1st, 2018 renewals season, Darren Redhead, Chief Executive Officer (CEO) of Kinesis, discussed the insurance-linked securities (ILS) and broader re/insurance landscape, and what market dynamics could mean for Kinesis moving forward.

The improved rating environment enabled Kinesis to increase the aggregate limits sold for its 1 January 2018 Cycle by around 30% compared to its 1 January 2017 Cycle.

“Our small size enables us to be very tactical and nimble, and scale up existing deals that had a very good risk adjusted return and add a few new ones as well. Also, we were able to deploy capacity into opportunistic back up covers promptly following hurricanes Harvey, Irma and Maria, demonstrating how nimble and flexible our platform can be,” Redhead told Artemis.

He continued to explain that some good opportunities arose as a result of the large discrepancy between modelling agencies’ loss numbers for hurricane Maria and the fear of losing again in the fourth-quarter, although these were relatively small and for a short period of time.

Redhead also highlighted that the 2017 catastrophe events resulted in opportunities for Kinesis and its unique product set.

“We definitely saw more opportunities at 1 January 2018 as cedants are even more concerned about costs and efficient covers. A bespoke multi-class product can help cedants achieve these goals, but we can also design other types of short-tail reinsurance products – it doesn’t always have to be a multi-class product with several classes covered,” explained Redhead.

And regarding the potential for special draws throughout 2018 and beyond, Redhead said it was hard to say owing to the substantial amount of capacity in the space, but stressed “Kinesis will always be ready for elemental and non-elemental opportunities.

“We have completed two “special draws” since inception and were able to deploy large amounts of capacity quickly with the help of our existing investors.”

Kinesis actually raised more capital than it was ultimately able to deploy, but as always, chooses to return such excess back to investors if opportunities don’t match its risk adjusted return criteria, and also to avoid any cash drag, explained Redhead.

Regarding the January 2018 renewals, Redhead said that “rates have increased for sure on average, more for retro players and those having access to the D&F property market.”

But overall, he explained to Artemis that general increases “were less than anticipated on average due to the large amount of capacity available and how fast the ILS market was able to reload.”

“We don’t think the cat bond market has seen any increases at all for new issues,” he added.

The large catastrophe loss bill as a result of third and fourth quarter 2017 events meant that the January 2018 renewals season was always going to be interesting, particularly after years of falling rates and the increased presence and influence of third-party investor capital in the insurance and reinsurance world.

Looking forward, Redhead said; “The ILS market is definitely here to stay, and proved to be very resilient in 2017. As far as we know, capacity wasn’t an issue but the industry needs to ensure that investors are receiving proper loss and IBNR information, as there is still too much volatility in general transparency and reporting standards.”