XL Group’s insurance and reinsurance linked investment unit, New Ocean Capital Management Limited, has increased its contribution in terms of income to XL, hired a COO and signed a distribution agreement with a global financial institution to aid growth.
New Ocean Capital was launched in 2013 as a joint venture between insurance and reinsurance firm XL Group and insurance focused private equity investment outfit Stone Point Capital. In 2014 New Ocean Capital launched its first two insurance-linked investment funds, to focus on allocating the seeding partners capital and raised third-party capital in insurance-linked securities (ILS) and reinsurance linked investments through collateralized reinsurance and other insurance linked assets.
New Ocean Capital, which is headed up by ILS industry executive Chris McKeown who joined the firm in late 2013 as CEO, now offers three main ILS funds which enable investors to access the returns of reinsurance risk and are available for third-party capital inflows.
The contribution that XL’s over 50% stake in New Ocean makes to the firm’s bottom line has increased over the last year as the investments and third-party capital in its three funds, New Ocean Market Value Cat Fund Ltd., New Ocean Focus Cat Fund Ltd., and New Ocean Diversified Cat Fund Ltd., begin to flow return and management fee income back to the re/insurer.
XL Group is seeking to grow its New Ocean Capital unit, as all insurers and reinsurers operating a third-party reinsurance capital arm seek to do currently. However XL has taken a shrewd step of signing a distribution agreement with a global financial institution in order to assist its raising of third-party funds from investors and to increase its insurance linked assets under management.
James Veghte, Executive Vice President and Chief Executive, Reinsurance Operations at XL Group, commented on the continued progress that CEO McKeown and the New Ocean Capital team are making during the firms Q3 earnings call this week; “Chris continues to build out his infrastructure with the hiring of a Chief Operating Officer this quarter and he is attracting third-party capital including the signing of a distribution agreement with a global financial institution.”
Agreements on distribution with global financial firms can significantly accelerate an ILS managers growth, enabling it to access a much wider range of investors through the partners distribution network. This is a much more scalable solution for growth, as an ILS manager alone can sometimes struggle to have the broad reach required to continue accessing new investors This should stand XL and Stone Point in good stead to raise the capital under management at New Ocean Capital considerably.
Also of note in the last quarter, New Ocean Capital has hired a Chief Operating Officer, as it continues to build out its platform and processes. Peter Gracey joined New Ocean Capital Management in July 2014 and is based in Bermuda. Peter was previously Head of Operations with Meditor Group, a private equities investment house with a financial services and insurance focus. Prior to that Peter had worked with Citigroup, KPMG and Deloitte.
XL Group, like other traditional players with an ILS unit, is putting a considerable focus on these operations as a core part of its business as it goes forwards. Having access to collateralized capacity to put to work alongside its balance-sheet capital can help re/insurers to become more efficient and to lower their cost-of-capital. This is just one of the changing elements of the reinsurance business model but right now among the highest priority for many of these firms.