Lancashire Capital Management Limited, the third-party capital collateralised reinsurance underwriting arm of specialty insurance and reinsurance group Lancashire Holdings, grew roughly 20% during 2019, to enter the 2020 renewal season with somewhere north of an estimated $600 million of limit available to deploy.
In the current market environment, Lancashire Capital Management’s fully collateralised and multi-class reinsurance product is likely experiencing high levels of demand, making the growth in capital and limits available to deploy key to the team’s ability to build out its portfolio, by seizing opportunities at a time of retro market dislocation.
As we explained last week, Lancashire’s rebranded third-party capital management and collateralised reinsurance underwriting unit delivered increased fees to its parent for 2019.
Following a few years where catastrophe losses took their toll across the insurance-linked securities (ILS) and collateralised reinsurance sector, the Lancashire Capital Management strategy had a strong year in 2019, with mid-teen returns forecast for their investor base.
As with any ILS strategy of this kind, scale is also important in order to take advantage of the available opportunities, something that is especially important at this time when retrocession markets have been disrupted somewhat and demand still remains high.
That presents an opportunity to those with capital to deploy and it’s clear that Lancashire Capital Management has been raising funds through 2019, helping it to end the year with at least an estimated $600 million of limit to deploy, we understand.
Since January 2019 the Lancashire Capital Management portfolio grew by roughly 20% thanks to the increased capital raised from its third-party investors, giving it this enlarged pot of limit to deploy.
It’s typical for the manager to also raise fresh capital for the renewal as well, so there is every chance that actual limits in deployment within the Lancashire Capital Management collateralised retro reinsurance portfolio are even higher than that at this stage.
The strategy also retains flexibility to make so-called ‘special draws’ from investors as the year progresses as well, enabling it to respond to market conditions and take advantage of them to raise additional funds and deploy more limit.
There is every chance that the state of the retrocession market and the demand for its still relatively unique multi-class collateralised reinsurance product, enable Lancashire Capital Management to grow its book considerably over the course of 2020 as well.