Reinsurer affiliates lift share in ILS market

Scor’s acquisition of Coriolis underscores the proliferation of reinsurer-affiliated firms within the ILS management sector over the past five years – a trend that has been supported by M&A deals as well as new launches.

But while this trend has grabbed most of the industry’s attention due to huge headline deals involving top-tier players, the sector remains relatively evenly balanced, with some uptick in asset management-owned firms also evident over the same timeframe.

In mid-2014, 36 percent of 45 ILS firms tracked by Trading Risk were independent manager-owned firms, either outright or as majority owners.

But this shrank to 26 percent by May 2019 – although the total number fell by only one in a growing pool.

Since July 2014, the deals that have formed part of the reinsurer land-grab narrative include Markel’s acquisitions of Catco and Nephila, and Amlin lifting its ownership stake in Leadenhall to a majority in late 2014.

These heavyweight deals are reflected in the fact that, by share of assets under management, reinsurer affiliates had taken a 40 percent market share by 2019, successfully catching up from their back-foot position in 2014 when they had just 13 percent.

M&A deals brought $19.9bn of new assets to the reinsurer affiliate group, well ahead of the $13.1bn organic growth achieved in the past five years by a group of reinsurer affiliates Trading Risk was tracking back in 2014.

Asset managers add capabilities

However, over the same timeframe, the number of active asset management-backed ILS platforms expanded from 22 percent to 36 percent, influenced by several M&A deals as well as new additions.

But this segment’s market share by assets under management moved up less sharply, from 29 percent in 2014 to 37 percent in 2019.

The deals that contributed to growth included Schroders taking a majority stake in Secquaero, Elliott buying into Aeolus in 2017 and Neuberger Berman acquiring Cartesian Iris this year.

New inclusions in the asset management segment featured a couple of cases of businesses that had previously been active in the field, but have only been tracked since they began packaging specific ILS strategies to investors – notably Amundi Pioneer.

It also included a couple of firms that have set up new desks focussed on the cat bond market – Tenax and Lombard Odier – and half a dozen fund-of-fund offerings alongside the incumbent K2, as well as BTG-backed Lutece Re, which writes collateralised reinsurance and retro. 

Fund of fund firms are not typically tracked in Trading Risk’s main ILS assets under management list, to avoid double-counting their capacity, but they were included in this dataset since they could be pitching for investor mandates alongside other operators.

Institutions that operate ILS investment desks within broader hedge fund strategies but do not market specific ILS vehicles – such as Quantedge or Blue Mountain – were not included.

Expansion not consolidation persists despite challenges

The Scor-Coriolis deal stands out as a rare example of M&A being on track to achieve ILS consolidation rather than simply an ownership transfer.

While both entities and brands will continue to operate in tandem for the rest of the year, a planned gradual integration lies ahead that will bring the two together under Scor’s mantle.

In this respect it is comparable to the situation Axa-XL is currently in, although it is not yet clear whether the group will continue to offer two different branded strategies after the deal brought the Axa IM ILS team and XL’s New Ocean platform into one corporation.

However, even though the ILS world still comprises a number of minnow platforms that might be considered sub-scale, the number of actors has multiplied in the past five years rather than consolidating to a smaller set of larger agencies.

A couple of closures have indeed taken players out of the 2014 peer group – including hedge fund-operated AQR Re and reinsurer platforms Sirius Capital Markets and Third Point Investment Management. Markel Catco remains on the list, although a majority of its assets are due to be returned to investors.

But overall new platforms have continued to join the market despite the past five years being highly competitive.

New independent managers that have launched since 2014 are led by Hudson Structured, with several other more recent, smaller players such as Tangency or Entropics.

Blurred boundaries

Not all ILS platforms fit into easy categories. For example, Axa has historically run its ILS business out of its investment management operations rather than its insurance division, so in the 2014 listing it was assigned to the asset management grouping.

Some firms that were not classified as reinsurer affiliates nonetheless have minority shareholdings from carriers but operate independently of their underwriting teams (Aeolus and Allied World, along with Pillar and TransRe).

And more broadly speaking, within the reinsurer affiliate peer group it can be difficult to draw a line between carriers operating a true asset management division versus those simply raising some third-party capital (often from those in the ILS world) to support retro sidecars.

The Trading Risk ILS manager list attempts to focus on the reinsurers that offer investors active portfolio management services, and does not include some more recent sidecar-only sponsors such as Hamilton or Liberty Mutual.

However, some firms within the list, such as PartnerRe or Swiss Re, only offer sidecar transactions that may require investors to take their own view on risk rather than entrusting asset management responsibility to the carrier.