For Amlin plc, the non-life insurance and reinsurance group, its investment in insurance-linked securities (ILS) and reinsurance-linked investments manager Leadenhall Capital Partners LLP (Leadenhall) is expected to help it to offset lower catastrophe reinsurance margins in 2014.
As Leadenhall has grown its participation in the global reinsurance market, lifting its reinsurance-linked assets under management to $1.5 billion recently, Amlin is increasingly feeling the benefits of the synergies that an investment in a leading ILS and reinsurance-linked investments manager brings to it.
In its latest quarterly management statement, Amlin said that it expects strong competition in catastrophe reinsurance to continue, citing its expectation of further pressure on reinsurance pricing from the growth of alternative reinsurance capital and limited loss activity in the market.
One of the factors Amlin expects to offset some of the expected further decline in catastrophe reinsurance pricing is its investment in Leadenhall. The statement states that it expects; “A growing contribution to earnings from our investment in Leadenhall Capital Partners, is expected to help offset lower catastrophe reinsurance margins in 2014.”
Amlin sees itself as well positioned to meet the increased competition posed by capital markets investors allocation of capital to the reinsurance space. As well as the constant development of its own reinsurance offering, as it seeks to remain competitive, Amlin sees the investment and relationship with Leadenhall as a key factor in its positioning.
The statement says that Leadenhall’s strong track record since its launch in 2008 has helped it to continue to attract new funds, taking it to $1.5 billion of third-party funds under management. Amlin sees Leadenhall as increasingly relevant to its own reinsurance strategy, with synergies being found between Amlin’s traditional business and Leadenhall’s specialism in ILS and collateralized reinsurance markets.
Amlin believes that Leadenhall strengthens its overall offering to clients while at the same time Amlin offers Leadenhall a competitive advantage in sourcing attractive reinsurance business. It believes that these synergies will further strengthen Amlin’s market position as the evolution of the reinsurance market continues and convergence between reinsurance and the capital markets moves forwards.
Charles Philipps, Chief Executive of Amlin, said; “Amlin has had a good third quarter and we expect to deliver an above target return on equity in 2013. Our core businesses are performing well in demanding market conditions, Amlin is well positioned to take advantage of the opportunities created by changes in the reinsurance market and the improving returns on our investments in Amlin Europe, Amlin Re Europe and Leadenhall Capital will increase the benefit of the diversity they bring to the Group.”
This is precisely the reason we have seen so many traditional reinsurance firms establishing third-party capital management and ILS units this year. As traditional margins have declined, the benefits of having an ILS specialist on board grow, enabling Amlin to participate in areas of the market its traditional reinsurance balance-sheet may no longer be the most suitable.
Other traditional players are sure to be watching how a relationship such as Amlin and Leadenhall’s develops and will be taking note of the synergies the two firms increasingly benefit from. Amlin is clearly expecting 2014 to be tough for writing catastrophe reinsurance on a traditional balance-sheet and expects Leadenhall’s contribution will go some way to offsetting the more difficult reinsurance market conditions for it.