Northern Re partners with Jaffa Capital Management for asset management
Northern Reinsurance SPC, Ltd. (Northern Re), the Cayman Islands based collateralized reinsurance company that provides an opportunity for investors to source returns from its long-tail casualty underwriting business, has announced an asset management partnership with Jaffa Capital Management.
Northern Re launched in early 2023 looking to 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 focused on high-frequency, low-severity insurance risks.
The company took its committed capital to $75 million towards the end of last year, which has helped it to grow its footprint and the size of its underwriting portfolio.
Northern Re has now announced a strategic alliance with Jaffa Capital Management, LLC, an insurance and reinsurance focused investment manager.
Under the partnership, Northern Re will now benefit from Jaffa’s fixed income expertise, with strategis led by the firm’s Founder and Chief Investment Officer Mark Zarkhin and co-founder Nathan Lord, who between them have a combined 40 years of investing and insurance experience.
Northern Re’s insurance-linked investment strategy produces premium and collateral assets which can be invested within the confines of reinsurance trusts.
The types of eligible investments are dictated by the terms of the trust, so which the assets can be allocated towards, which closely mirrors similar principles to those of an insurance company balance sheet.
Working alongside Jaffa, Northern Re’s trust assets are said to have significantly over-performed relevant fixed income indices in 2023 and are trending similarly through H1 2024.
“As we approach premiums and collaterals in our trusts of $200 million in 2024, our focus remains on utilizing liquid, low-risk assets while minimizing downside in the portfolio. Jaffa actively manages our trusts such that we are properly hedged against macro concerns like inflation or duration risk,” explained cofounder Anthony McKelvy, “It has become clear that insurance carriers prefer cash over Letters of Credit as a form of collateralization. Our partnership with Jaffa further strengthens this value proposition to our counterparties while generating alpha.”
“Partnering with Northern aligns perfectly with our mission to harness fixed income mandates for robust asset growth within re/insurance companies,” added Mark Zarkhin, Jaffa’s CIO. “Their market position and dedication to liquidity management makes Northern an ideal partner for achieving sustainable returns through our strategies.”
Zarkhin was previously the head of the proprietary securitized products trading business at Citi, where he worked from 2004 to 2014, and a senior portfolio manager at Millennium from 2014 until 2022.
Jaffa’s investment strategies aim to generate extra return per-unit of risk, in highly rated fixed income investments, all while avoiding heavy exposures to credit, the economic cycle, and real estate.
“We believe that active portfolio management is key to delivering better results, which we strive to achieve by offering custom solutions for asset-liability risk management and decorrelation. This is paired with our firm’s specialized skill set that enables us to offset an insurance portfolio’s exposure to macroeconomic factors such as inflation and economic cycles,” co-founder Nathan Lord explained.
Lord was previously a leader of underwriting and actuarial teams at insurance giant AIG, before co-founding Jaffa in 2022.
Northern Re has an investment philosophy that emphasizes steady, low-risk yield, derived from assets that correlate to the duration of their reinsurance portfolio liabilities.
“It’s very rare that re/insurers would have access to asset managers with the Jaffa team’s track record. We’re fortunate to work with Jaffa and are excited about the long-term benefits of this relationship,” Peter McKelvy, Managing Partner of Northern Re said.
Making reinsurance collateral assets work harder for those offering longer-tailed ILS strategies is increasingly a subject of focus, as the ILS market looks to get the balance right in terms of risk and reward, while staying true to the collateralized nature of the coverage it provides.
