Vantage ILS strategy, partnering with investors on cat risk, cited by AM Best

Rating agency AM Best has cited Vantage Risk’s insurance-linked securities (ILS) strategy, of moving catastrophe risk off its balance-sheet with the backing of third-party investor capital, as positive and able to drive income and reduce volatility.

Vantage Risk, the Bermuda headquartered insurance and reinsurance company, had leveraged investor relationships to raise a pool of third-party capital using its AdVantage collateralized insurer class of company in time for the recent reinsurance renewal season.

This capital was then deployed into property catastrophe reinsurance underwriting opportunities around the 1/1 2023 renewals, as the company looked to maintain its participation in that key market, but utilise third-party capital as well as its own.

It’s both a strategy to be more meaningful in its writings of property catastrophe reinsurance risks, while generating returns for itself and the investors backing the new capital raise, but also reducing balance-sheet volatility, which rating agency AM Best has noted.

AM Best has affirmed the financial strength and credit ratings of Vantage Risk and its affiliates, saying it views the firms balance sheet strength as very strong and operating performance as adequate.

AM Best said that Vantage Risk has had an “active initial two years of operations”, but saw its underwriting income impacted by elevated catastrophe losses in its reinsurance operations for a second year in a row.

“AM Best expects projected combined ratios for 2022 to improve over 2021,” the rating agency said.

Adding that, “In response to the heightened volatility, the group has implemented a strategy to move property catastrophe business off its balance sheet, but continue offering it through their insurance-linked securities (ILS) vehicles.

“This strategy is expected to provide Vantage with accretive income while reducing volatility in operating results.”

Which is precisely why traditional insurance and reinsurance companies have been establishing off-balance-sheet third-party capital vehicles, to partner with investors on lines of reinsurance business, in this way.

For a growing re/insurer like Vantage, that is expanding its diversification through primary insurance lines, this is a great way to maintain a market-share in catastrophe reinsurance, without over-exposing its own capital and taking on too much volatility.

While for the investors, it’s a way to partner with an established player that has broad market access, to access the returns of cat risk business under the guidance of its underwriting.

Read our interview from earlier this year with Chris McKeown, Chief Executive, Reinsurance, ILS, and Innovation at Vantage, who discussed how the company has been working to mitigate some of the challenges investors have faced with traditional ILS products.

Chris McKeown will be speaking at our upcoming ILS NYC 2023 conference on Feb 10th. Register here to attend.