Kiskadee ILS assets expected to hit $500m by mid-year: Hiscox

Bermuda-headquartered, London-listed insurance and reinsurance group Hiscox reported its preliminary results today, in which it said that it anticipates insurance-linked securities (ILS) assets under management at Kiskadee Investment Managers will reach $500m by mid-2015.

Kiskadee, the third-party reinsurance capital management and ILS specialist unit at Hiscox, has been growing strongly since the operations launched in earnest at the beginning of 2014. Kiskadee reached $400m of ILS and reinsurance assets under management by the 1st January 2015 and further growth is expected through this year.

Hiscox intends to put greater focus on the areas of its business where it feels the most value can be found and where it can win, with one of the areas cited being the continued growth of its ILS business at Kiskadee.

However focus on Kiskadee is also a response to the increasingly challenging market environment, the structural change that the reinsurance market has undergone and the need to leverage more efficient and lower-cost sources of underwriting capital alongside its own balance-sheet capacity.

CEO Bronek Masjoda commented; “We have been successful at adapting to the changing market. The way capital is provided to reinsurance is changing. Our response to this change, the Kiskadee Funds, has grown to almost $500 million, from nothing two years ago.”

Kiskadee actually reached $400m of ILS and third-party reinsurance assets managed at the 1st January 2015, but Hiscox expects this growth to continue, with the “Kiskadee ILS funds on track to reach $500 million by mid-year.”

Looking at Hiscox’s results it is clear that Kiskadee raised a significant amount of third-party capital for the January renewals this year. The re/insurer reports that it had almost $170m of cash, or cash equivalents, on its balance sheet “For subscriptions received in advance by the Kiskadee Diversified and Select ILS funds that remain un-invested at 31 December 2014.”

These subscriptions received in advance are likely third-party investor funds that had been raised and received in 2014 by Kiskadee for deployment into 1st January renewal transactions, meaning they had to be reported within the prior year results as cash on hand.

Chairman of Hiscox, Robert Childs, commented on the continued interest of third-party capital market investors in reinsurance and catastrophe risk as a driver of returns. As you might expect, given the focus on Kiskadee, Hiscox is not among those traditional insurance or reinsurance firms who expect ILS capital to flee the market.

Childs commented; “The ongoing low interest rates and benign claims experience continues to attract new capital to our markets, putting pressure on brokers and insurers. In my opinion, the new sources of capital are here to stay. They have become accustomed to operating in our business, so I think they are unlikely to move on (as perhaps some hope they will) when rewards improve in other parts of the capital markets.”

Hiscox said that it has capital commitments to take the Kiskadee ILS funds to $500m by the mid-year. If that capital is already committed to their ILS manager then it is entirely possible that Kiskadee could attract even more by the key June renewals.

For Hiscox, Kiskadee is assisting the re/insurer in terms of both attracting new sources of capital to support its underwriting while also enabling it to leverage the lower-cost capital alongside its own. Kiskadee’s ILS business, alongside product innovation, positions Hiscox to better cope with the challenging reinsurance market environment.

As Kiskadee moves up the ranks of the ILS manager community it will be interesting to watch how Hiscox puts this growing pool of efficient capital to work. Kiskadee could help Hiscox to remain a key player in property catastrophe risks at a time when its own balance-sheet can be put to better use elsewhere.