Leadenhall backed Nectaris Re records “solid” underwriting results: AM Best

Nectaris Re Ltd., the Class 3A Bermuda-based rated reinsurance underwriting platform backed by London headquartered specialist insurance linked securities (ILS) and reinsurance related investments manager Leadenhall Capital Partners LLP, reported “solid” underwriting results for both 2022 and 2023, according to AM Best.

Nectaris Re was launched with Leadenhall backing through a Mutual Cooperation Agreement in 2021.

This arrangement gives the ILS fund management business operated by Leadenhall access to a rated reinsurance underwriting platform through which business can be sourced from the open market.

In an update on Nectaris Re’s credit ratings, AM Best said that it assesses the reinsurance vehicles overall operating performance as adequate, “based upon solid gross and net underwriting results in 2022 and 2023.”

AM Best affirmed the Financial Strength Rating of A (Excellent) and Long-Term Issuer Credit Rating of “a” (Excellent) of Nectaris Re Ltd. (Nectaris Re), the operating subsidiary of Nectaris Holdings Ltd., with stable outlooks for all credit ratings.

The rating agency said that, as well as sourcing reinsurance business via MS Amlin’s Lloyd’s Syndicate 2001 and MS Reinsurance (remember, Leadenhall is a subsidiary of Mitsui Sumitomo Insurance Company), “Nectaris Re also sources substantial business via its open market operations.”

The open market operations have been growing over time, as we reported a year ago.

Business is retroceded to the Horseshoe Re II Limited segregated accounts company, using cells funded by insurance-linked securities funds managed by Leadenhall Capital Partners.

There has been an adjustment to strategy for the open market business, AM Best noted.

“Historically, all open market business retroceded to Horseshoe Re II was collateralized at the 1-in-2,000 AEP return period, with the associated tail risk retained by Nectaris Re. Beginning in 2024, the Horseshoe Re II retrocession for the open market business will be collateralized at a lower level than in prior years, but not less than the 1-in-250 AEP level, with Nectaris Re retaining the tail risk above that level,” the rating agency explained.

AM Best also noted that all retrocession ceded limits are written on a collateralized basis, which minimises Nectaris Re’s counterparty risk.

Adding that, “Despite the reduction to the Horseshoe Re II collateralization level noted above, the ratio of the tail risk retained by Nectaris Re to its equity is still expected to be low.”

AM Best also said that Nectaris Re’s performance is deemed adequate and it has recorded, “solid gross and net underwriting results in 2022 and 2023, along with the historical operating results of the reinsurance portfolio of the Leadenhall-managed funds from which the Nectaris Re portfolio was formed, and the projected performance results of the retained tail risk.”

In addition, Nectaris Re and thus the Leadenhall ILS strategies it underwrites risk for, “benefited from the higher interest rate environment by earning additional investment income.”

Ceding commissions also make up a “substantial portion of Nectaris Re’s net income,” the rating agency explained.

In a filing for full-year 2022, Nectaris Re reported $152 million of gross premiums written, all of which was retroceded to Horseshoe Re II, with loss and loss adjustment expenses on the income statement far lower at $58.6 million.

Meanwhile, the reinsurer generated over $7 million in comprehensive income for the year, almost $2.5 million of which was investment income. The income covers expenses of running the reinsurance company and provides a return to its shareholder, while the ceded reinsurance business drives the profitability for the funds that back the Horseshoe cells.

The Nectaris Re platform provides ILS investment manager Leadenhall with an efficient and rated route to access reinsurance risk, to the benefit of the firm’s ILS funds and their investors.

With solid results being reported and the added benefit of interest rate effects on the investment income earned by Nectaris Re, the relationship with the reinsurance vehicle has no doubt become an increasingly valuable contributor to Leadenhall Capital Partners business.