Stone Ridge’s investments into Lloyd’s backed $250m of premium in 2018

Stone Ridge Asset Management, the alternative risk premia focused mutual fund manager that has specific reinsurance and insurance-linked securities (ILS) strategies, significantly expanded its allocations of capital to Lloyd’s of London syndicates in 2018 with its investments deployed into business amounting to almost $250 million of gross premiums.

Stone Ridge established a UK registered limited liability partnership named Point Dume LLP, structured and positioned to act as a corporate member of the Lloyd’s of London reinsurance market, back in 2017.

The Lloyd’s corporate member vehicle provided Stone Ridge with a way to access the reinsurance linked returns of the key specialty re/insurance hub in London, channelling profits from it back to investors in its flagship mutual ILS fund, the Stone Ridge Reinsurance Risk Premium Interval Fund.

The profits, or returns, of Lloyd’s insurance and reinsurance underwriting business that Stone Ridge has been funding through Point Dume are channelled back to its ILS fund using a holding entity, Point Dume Holdings Limited, in which the Interval ILS fund holds shares.

The capital deployed through Point Dume is invested behind Lloyd’s underwriting business, of specific syndicates or books of business that Stone Ridge elects to support, we understand.

It’s now clear just how big these investments became in 2018, as documents seen by Artemis show that for an outlay of some US $200 million of capacity the investments made by Point Dume at Lloyd’s underwrote some $250 million of premiums in full-year 2018.

In 2017 the figures were just around $10 million of capacity deployed that backed lower premiums than that, which is presumably due to start-up costs and expenses.

In the 2018 underwriting year Stone Ridge Asset Management’s vehicle at Lloyd’s Point Dume deployed capital to support a wide range of lines of business at Lloyd’s, of which reinsurance was the lions share at almost three-quarters of gross premiums written, followed by property insurance business.

But Stone Ridge sought returns from other insurance lines such as accident & health, motor third party liability & other classes, marine, aviation and transport, third party liability and credit and surety.

It’s a challenge to understand how profitable, or otherwise, Stone Ridge’s direct investments into Lloyd’s of London insurance and reinsurance business have been though, as it reports an underwriting profit of 0% for Point Dume, with a combined ratio of 132.6% (better than 2017’s 141.9%, although that could be down to the expense of setting up the corporate member).

As with all ILS operations in the Lloyd’s market, the results themselves are not clear-cut in the case of Stone Ridge’s Point Dume.

While the vehicle reported a negative balance on the technical account, or a technical loss, reading between the lines it seems that the corporate member accounts for some US $124 million of outward reinsurance premiums in 2018, which significantly reduce retention in Point Dume itself, which we suspect may be a reinsurance agreement to flow premiums back to Stone Ridge’s funds (although can’t confirm).

We don’t have visibility of Stone Ridge’s activities through Point Dume in 2019 as yet, but there’s a good chance it remained a key component of the asset managers risk origination platform, perhaps one that grew in the year.

As of October 31st 2019, Stone Ridge reported that collateral held to support its Lloyd’s corporate member was just over $182.6 million, which was down slightly from $196.6 million at April 30th last year.

As with other ILS activities in Lloyd’s, it shows that investment managers are finding effective ways to support select underwriting in that insurance and reinsurance market and we expect that this will continue.