Ascot looks to expand sidecar and Bermuda reinsurance platform for 1.1

Ascot is set to fundraise for its Canro Re sidecar vehicle and selectively expand its Bermudian reinsurance operations for what it sees as attractive underwriting opportunities, The ReInsurer can reveal.

The group, which also operates via its long-established flagship Lloyd’s syndicate 1414 and its relatively new US insurance company and MGU platforms, will look to grow within the context of an overall balanced portfolio to avoid becoming overweight in cat, however.

In an interview with this publication, Ascot’s recently appointed group president Jonathan Zaffino said the company is seeing a broad opportunity in reinsurance on its platform.

He said that discussions with brokers had affirmed a shift in psychology and buying behavior from several cedants.

“They’re looking for viable partners, and we’re high on the list because of our history, A ratings, unique ownership and, of course, our clean balance sheet. We’re confident that we’re going to have a meaningful opportunity to selectively grow our portfolio,” said the former Everest Insurance CEO, who now oversees Ascot’s US and Bermuda operations.

As previously reported, after initially writing as an MGU in Bermuda, the company launched its own balance sheet as Ascot Re on the island in time for the 1.1 2018 renewal.

Despite a significant capital commitment from CPP Investments, the platform and its initial business plan was scaled back as the anticipated property cat opportunity after 2017 losses didn’t materialize.

Talking to The ReInsurer, Ascot’s group CEO Andrew Brooks said not deploying a portion of the start-up capital had meant the company had avoided 2018 losses, including the California wildfires.

He said the group and its backer had put the Bermuda platform in a position where it has no significant exposure on its books, and is “very valuable” because the infrastructure is in place to move quickly when an opportunity arises.

“Where we see the reinsurance market at the moment, there’s still a general underpricing in many sectors like international cat; but for certain catastrophe zones and niche segments of the casualty market, we’re seeing some opportunities for growth,” Brooks commented.

Ascot also has a casualty insurance team on the island that will contribute to that growth after hiring Patrick Kenahan and his excess casualty team from Allied World last October.

Canro Re fundraise

Brooks also confirmed that Ascot will look to expand its Canro Re sidecar vehicle over the next few months in the lead-up to 1.1.

“With retro capacity reducing, it’s looking like a favourable proposition right now. We’ve always been prudent in our underwriting approach, but we want to have the capital ready to deploy when the right opportunities present themselves,” said the executive.

He added that while the group has access to funding to further grow its retro book on its own balance sheet, the level of capital associated with that may make it more attractive to seek third party support via the special purpose insurer.

As reported in January this year, Ascot expanded its traditional ultimate net loss (UNL) retro book at attractive pricing at 1.1, as it utilized excess capital at the group level as well as the new third-party capital quota share vehicle. Canro Re was set up as a special purpose insurer in December last year.

It is understood that the sidecar-style structure took a quota share participation of around 35 percent across every UNL-occurrence retro line put down by Ascot at the renewal.

Ascot is recognized as a leader in property cat reinsurance, including retro, with a long and successful track record.

Canro Re does not write any one shot or aggregate retro products. Property underwriting in Bermuda – which currently includes a worldwide retro product offering – is led by Simon Kimberley, with underwriting on the Lloyd’s platform overseen by group CUO Mark Pepper.

Retro tightening provides opportunity

The selective targeting of retro business for 1.1 by Ascot comes at a time of tightening capacity that is expected to see further significant hardening at the renewal.

Panelists participating in The ReInsurer’s virtual debate looking ahead to the key January renewals earlier this month said that investor caution looks set to drive further double-digit increases in retro pricing, as capacity tightens amid ongoing issues of trapped collateral.

Capsicum Re chief executive Rupert Swallow suggested that rate increases of 20 or 25 percent are possible, or even higher depending on what happens between now and the end of the year.

Meanwhile, Jason Howard, CEO of Beach & Associates, highlighted bifurcation across the ILS sector as investors have retreated from the collateralized marketplace, even as the cat bond market has continued to trade successfully and delivered better results for investors.

The theme was picked up at Guy Carpenter’s “The Changing Nature of Risk” event last week, as the reinsurance broker pointed to cat bonds substituting retro capacity, and a continued pull back from aggregate structures.

But the firm’s chairman David Priebe also noted increasing activity and interest both from new capital and existing rated balance sheets looking to deploy new capital in the retro market.

That ties in with a theme previously reported by this publication as a number of rated carriers have looked to pivot from being buyers of retro to sellers of retro.

Sources have noted that the appetite from rated carriers seems to be to write more occurrence retro in the higher layers – where it has been the lower layers of occurrence retro and aggregate covers that have seen the most dramatic tightening of capacity and biggest price increases.

They have also suggested it would take billions of dollars of new capital entering the retro market to change the current dynamics.

Among reinsurers “pivoting” to write more retro are thought to be TransRe, PartnerRe and Everest Re, while RenRe has already publicly indicated it will do so.