One of the newer investment managers with a focus on collateralized reinsurance, including instruments such as catastrophe bonds, insurance-linked securities and industry-loss warranties, is aiming to be investor focused by matching their needs with the best opportunities in the market. Petra Haven Capital LLC is based in Charlotte, North Carolina and led by CEO Brad Chance, the firm is actively raising capital with a view to beginning to deploy it as soon as they reach a viable size.
Petra Haven Capital is backed by a family office in the U.S., giving them an anchor investor from which to grow their assets under management. They’ve been finalising their operations in recent months, hiring a senior team and finalising their board of advisors and are now actively in the marketplace talking to potential investors and introducing themselves to market participants who are potential counterparties.
Petra Haven Capital has brought together a team with experience from across the disciplines of insurance, structured finance and the capital markets consisting of CEO Brad Chance, Managing Directors Jonathan Murray and Brent Moore. Brad Chance told us that key to Petra Haven Capital’s day to day business will be back-office tasks such as calculating the probability of events occurring, quantitative mathematical analysis of their portfolio and ensuring the wording and structuring of contracts are accurate and in their best interests to invest in.
To help Petra Haven Capital achieve the returns it hopes to make for investors, the firm will use an independent outside company for asset valuation and also external accounting and auditing firms. They will have an in-house valuation specialist to review and verify the information they are given. Brad Chance told us that he hopes the use of external specialists will help Petra Haven Capital be known for accuracy, transparency and to be trusted by their partners in the market and investors alike. Petra Haven will use all three of the major vendor risk models to help them assess opportunities and keep an eye on the mix of risks they are investing in.
Recognising the importance of the counterparty in any reinsurance or risk transfer transaction and the importance of good relationships, the management team of Petra Haven have developed what they term the ‘Ceding Counterparty Model’ to assist them in selecting business opportunities. Chance explained this as taking into account the following factors in every business deal:
- The historical track record post catastrophic event of the ceding party involved;
- a) How the counterparty generates/originates its business,
b) how the counterparty services and loss controls its business and
c) how the counterparty handles claims post catastrophic event.
CEO Brad Chance is certainly bought in to the need for the capital markets to assist in providing capital to the reinsurance markets. He said; “Reinsurance is approximately $1 trillion world wide while the capital markets are around $100 trillion. An event comparable to the San Francisco Earthquake of 1906, or Hurricane Andrew of 1992, could eliminate a good 10% or more of the capital available to insurers if it were retained in the insurance/reinsurance market. If this risk were to be kicked up to the capital markets, it would only affect a mere 1% of the market and the markets move on average in that range on a daily basis.”
When asked what Petra Haven Capital’s investment focus would be, he added; “We are looking at events that are very far removed from day to day life in terms of losses and attachments, but not so far removed that we are not generating a proper return for investors. It is really striking the balance of maximizing investors’ returns and minimizing risk. An insurance company can easily tell you with a great degree of accuracy how many auto claims they will have in a given year and their prospective dollar amount. That ability allows the insurer to charge an accurate and fair rate that ensures stability and coverage for all parties. The same ability should be present regarding ceding counterparties.”
It’s good to hear from new firms entering the sector. Given the increasing interest being shown by institutional investors in collateralized reinsurance and ILS/ILW’s there is plenty of scope and room for more dedicated asset managers to emerge.Disclosure: Artemis’ owner Steve Evans is an advisor to Petra Haven Capital LLC.