Northern Re, bridging the gap to casualty risk with a hybrid ILS approach

Backed by a private investment group, Northern Re is a reinsurance firm that views itself partly as a hybrid insurance-linked securities (ILS) manager, enabling its insurance company partners to access the benefits of ILS capacity without the usual contractual stipulations required by other collateralized providers, according to co-founder Peter McKelvy.

In a recent interview with our sister publication, Reinsurance News, Anthony and Peter McKelvy, the founding brothers of Northern Re, discussed a wide range of industry topics, including the role of third-party capital and ILS in the business.

As per Peter McKelvy, ILS has played a significant part in the insurance market since Hurricane Andrew, traditionally on the property side with the creation of catastrophe bonds. However, as that market has matured, new ILS products such as those now available for casualty risk, have been standardized in the marketplace.

Peter McKelvy went on, “Similarly, created out of a need for capacity, re/insurers and capital providers have come together to innovate on new structures which are now commonplace. This includes, most relevant to us, casualty quota shares supported by third-party capital.”

Further improving on those structures, Peter McKelvy explained that Northern Re is a reinsurance company supported by a private investment group.

He added, “Therefore we also view ourselves as a bit of a hybrid ILS manager. Our team specializes in the sourcing, structuring, and securitization of true insurance risk, and we do that in such a way that is digestible for outside investors.

“We combine this with a unique set of infrastructure, such that our insurance company partners achieve the benefits of ILS capacity without many of the contractual stipulations which are typically required by other collateralized players.”

By creating solutions around surplus, tail exposure, and other key areas that Northern Re’s counterparties focus on, the approach reportedly allows what has historically sidelined third-party capital to enter the market in a highly efficient manner.

Elsewhere in the interview, Anthony McKelvy provided insightful details about the future direction of Northern Re, stating, “First and foremost, continuing our profitable growth where we expect to achieve ~$250M in gross written premiums during 2024.

“In conjunction, we’ll be raising additional capital to support future writings and ensure that we are adequately capitalized across our companies while we grow.”

Anthony McKelvy observed that over the last 24 months, Northern Re has worked with some “truly strategic” capital who are excited about the market tailwinds being presented, and what has become a sound track record of performance.

Anthony McKelvy concluded, “In tandem, we’ve been able to educate those groups about the asset class and the benefits versus other alternatives

“As we move into 2025, we’ll look to expand the team with exceptional talent across pricing, finance, and operational functions. We are wholly committed to growing slowly and profitably, such that each of our internal teams have the capacity they need to execute on their roles.

“We’re actively looking at expanding our relationships with many of our current partners and forging new ones as we teach the market about our differentiation.

“I would encourage everyone to reach out to us to learn about what we’re doing and how we can partner together.”