The value of alternative risk premia focused mutual fund manager Stone Ridge Asset Management’s investment in a Lloyd’s of London corporate vehicle has increased significantly, as the appetite to access reinsurance linked returns through the key specialty re/insurance hub in London looks to be paying off.
It’s unsurprising that Stone Ridge has a desire to expand into the Lloyd’s marketplace, given the majority of its insurance-linked securities (ILS) portfolios are currently made up of catastrophe bonds, reinsurance sidecars and other private collateralized ILS instruments.
Stone Ridge’s ILS assets under management reached a new milestone of $7 billion at its latest quarterly reporting juncture, across its two main dedicated ILS mutual fund strategies.
While its allocations to numerous quota shares, reinsurance sidecars, catastrophe bonds and private ILS arrangements have grown the most, one investment that may be very important in the future for the manager has also increased in value, Stone Ridge’s Lloyd’s of London commitment.
Stone Ridge has its own UK registered limited liability partnership, named Point Dume LLP, which it seems has been structured to act as a corporate member of the Lloyd’s of London reinsurance market in order to provide the investment manager with efficient access to the returns possible from Lloyd’s.
Point Dume LLP has an incorporation date of 28th September 2016 and was set up for Stone Ridge with the assistance of Lloyd’s private capital specialist Argenta Group.
Stone Ridge’s initial investment in Point Dume LLP amounted to just $25,397 in 2017, with the allocation made by its largest mutual ILS fund strategy, the Stone Ridge Reinsurance Risk Premium Interval Fund.
As of October 31st 2017 that investment had nearly doubled in size to $53,136 and then by January 31st 2018, Stone Ridge Asset Management’s investment in its Lloyd’s corporate vehicle Point Dume LLP has been increased to a size where it’s likely that the manager is now allocating to specific Lloyd’s underwriting entities, with the value of the allocation cited at almost $1.81 million.
As of the latest reporting juncture the value of the Point Dume LLP allocation has increased by more than 250% to almost $6.4 million, likely reflecting more allocations to Lloyd’s underwriting entities through the limited liability partnership vehicle.
However, the cost of the allocation remained static, at just over $1.33 million, suggesting that Point Dume is benefiting from some premium return from Lloyd’s underwriting business, but also likely reflecting the fact that once established these LLP corporate members can be a very efficiency mechanism for diverting more capital into Lloyd’s underwriting.
Despite the 250% growth, the Point Dume allocation into Lloyd’s remains a very small piece of Stone Ridge’s overall ILS and reinsurance assets, which now total $7 billion, but it does reflect an increasing allocation into a Lloyd’s strategy, which is almost certain to continue increasing across renewal seasons in the future.
The Point Dume LLP investment demonstrates Stone Ridge’s desire to move beyond just being an investor in cat bonds, quota shares and sidecars, becoming a more active participant in the Lloyd’s market. This is aligned with its strategy of providing investors a market spread of reinsurance linked returns.
It also shows that Lloyd’s remains a compelling market for alternative capital to tap into, despite some underwriters difficulties. It shows that there are underwriting entities that are attractive to back still and the selection of those is likely key to Stone Ridge.
Of course it is also possible that Stone Ridge may be allocating to a market tracker, such as the Beazley run special purpose arrangement at Lloyd’s that is designed to channel facilities underwriting returns to capital providers and is already working with third-party capital.
That would be an effective way for Stone Ridge to invest in Lloyd’s returns on a more passive basis, while receiving a spread return of the specialist insurance and reinsurance market.