Collateralized reinsurer Northern Re raises additional $50m

Cayman Islands based collateralized reinsurance company Northern Reinsurance SPC, Ltd. (Northern Re) has taken its committed capital to $75 million, after it raised an additional $50 million from investors to allocate to programs of high-frequency, low-severity insurance risks.

Northern Re was established earlier this year by brothers Anthony and Peter McKelvy, who adopted a strategy to leverage deep sector knowledge along with a modern framework, to enable third-party capital to participate in the insurance-linked securities (ILS) asset class, through the deployment of capital against a select group of historically profitable insurance portfolios they know well.

The additional $50 million of funding has been raised now to facilitate Northern Re’s continued growth alongside the currently attractive market tailwinds.

With now $75 million of committed capital available to it, Northern Re intends to make the most of the favorable market conditions to expand its partnerships behind leading insurance companies, focused on the high-frequency, low-severity casualty risk market.

The collateralized reinsurer adopts a differentiated approach to the traditional collateral model, saying that it is “bifurcating the capital stack into company surplus, as well as risk capital,” and holds that risk capital as Schedule F collateral in a trust account, for the benefit of its carrier partners.

The cash collateral is then invested in qualifying highly-rated fixed income instruments.

Co-Founder Peter McKelvy explained that this ensures liquidity and simplifies the process through which carriers can access the collateral as well.

“This was an important decision we made early on in our lifecycle as we continued to evaluate how we could make the process with our counterparties easier and more secure. We are extremely comfortable trading within the guidelines of a trust, according to the state statutes or Credit for Reinsurance Model Act, and determined that cash would better meet the needs of our partners,” he explained.

A further differentiation between Northern Re and other collateralized reinsurance firms, is the existence of an onshore balance-sheet entity.

Northern Reinsurance Segregated Portfolio Holdings (Northern Holdings) is the ultimate owner of each of the individual segregated portfolios of the reinsurer and it maintains unencumbered capital that offers an additional layer of financial security in the event of adverse development within any one of the segregated portfolios.

Co-Founder Anthony McKelvy said, “This distinction is important, because it allows our carrier partners the visibility into additional risk protection relative to our overall portfolio size, while providing them assurance that this capital is not committed to any individual premium trust.”

On top of this, Northern Re maintains low premium to capital leverage, which means that the Northern Holdings balance-sheet is ideally positioned to manage any unexpected volatility or liabilities that could arise, from the historically stable portfolio.

Northern Re says it is committed to delivering transparency to its partners and continuously evaluates its surplus needs against the size and actuarial analysis of its overall book.

Since its launch earlier this year, Northern Re has already signed arrangements with a number of sophisticated MGAS and the largest fronting insurers in the market, many of which were critical partners in its development of the platform.

Northern Re has also supported mutual and regional insurance company opportunities, as the market continues to harden.

The company has a target to have over $100 million of committed capital for 2024, as it looks to establish Northern Re as a long-standing provider of stable reinsurance capacity, while delivering a source of differentiated insurance-linked returns to its investor backers.