Third-party capital alignment critical, says Brit CFO, as fee income rises

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Alignment between insurance and reinsurance company sponsors of third-party capital vehicles with their investor partners is critical, according to Brit’s CFO, as the company revealed a more than trebled its underwriting fee income from such activities in the first-half of the year.

brit-logoSpecialty insurance and reinsurance firm Brit Ltd. took its third-party capital under management to over $440 million for 2019 so far, solid expansion from the roughly $400 million under management across its collateralised sidecar, Sussex Capital ILS fund management unit and Syndicate 2988 in 2018.

Brit completed the fifth annual renewal of its Versutus reinsurance sidecar for 2019, with another expansion of capital cited.

At the same time, Brit has ambitious targets for its Sussex Capital collateralised reinsurance and ILS fund platform, which as we revealed back in May is targeting a doubling of its premiums written to around $250 million for the full-year 2019. A target that will require further growth of assets under management.

These activities demonstrate the importance placed on third-party capital activities by Brit, as it continues to expand its collateralised capacity as a companion for its own balance-sheet.

Matthew Wilson, Group Chief Executive Officer at Brit, further underlined the importance of third-party capital in his comments, saying, “For 2019, Brit’s total managed capacity across Versutus, Sussex Capital and Syndicate 2988 has increased to US$440m. The renewal and expansion of our ILS capacity, alongside the growth in planned gross written premium for Syndicate 2988, continues our successful strategy of managing capital for third parties by offering access to Brit’s leading underwriting capabilities, deep client relationships and extensive distribution network.”

Brit mentioned the planned growth for Sussex Capital in its results announced today, saying that the platform is “expected to grow in 2019.”

In addition, Brit plans to begin underwriting collateralised reinsurance through its London based protected cell company, Sussex Capital UK PCC, which was established in late 2018 but has yet to be put to work it seems.

The London based PCC vehicle from Sussex Capital is expected to offer direct collateralised reinsurance capacity, as well as collateralised capacity to Brit’s own book.

As a result, further expansion of third-party capital is likely at Brit over the rest of the year, as it brings its new London platform up to speed.

CFO Mark Allan commented on these activities, saying, “We have continued to benefit from the growth of our third party capital vehicles and from our investment in MGAs. Working with our capital and distribution partners is an important part of Brit’s strategy, that will enhance our leadership position and assist Brit in managing its expense base and strengthen our client proposition.”

Part of the benefit is in fee income earned, for the underwriting services rendered, capital management and also any available profit shares taken.

In the first-half of 2019 Brit’s underwriting related fee income totalled $17.7 million, which has lifted significantly from the $5.8 million earned in the first-half of 2018 and the $14 million earned for full-year 2018.

This includes management fees related to third-party capital activities and also fees earned in the MGA business, but with significant growth across the third-party capital platforms of Versutus and Sussex Capital it’s likely a decent amount of the growth in fee income has come this way.

With further expansion expected for Sussex Capital through the year ahead, Brit can likely look forward to raising the fee income figure further by year-end.

But of course, none of that fee income would be possible if Brit didn’t demonstrate alignment with its third-party capital partners, something the company is only too aware of the importance of.

“The ILS market is going through a transitional period on the back of 2017 and 2018, with market loss activity highlighting different strategies, risk profiles and performance. We believe that alignment is critical, and Brit is well positioned to provide attractive access to our partners with clear alignment in all of our third party capital vehicles,” CFO of Brit Mark Allan explained.

Alignment remains a challenge for re/insurers managing third-party capital and it’s not just about showing that you take losses when your investors do.

It’s about having aligned interests in terms of strategy, as well as risk, which Brit is clearly working to develop with its new Sussex platform build-out.

The company sees that these third-party capital activities are only going to become increasingly important for it.

Especially as market conditions are still not ideal, in Brit’s view.

CEO Matthew Wilson said, “Conditions remain challenging in a number of areas, with lower than anticipated rate increases in some sectors and some heightened claims activity on more recent years. In this environment, our clear strategy of embracing data driven underwriting discipline, and rigorous risk selection; coupled with innovative capital management solutions and continued investment in distribution, uniquely positions us to respond to the opportunities and challenges of today’s market.”

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