Vantage to expand third-party capital use, over $1.5bn to deploy in 2024: McKeown

Vantage Risk, the Bermuda headquartered insurance and reinsurance company, has plans to leverage third-party capital in a broader set of underwriting lines in future and now with over $1.5 billion of capital to deploy using its AdVantage collateralized insurer class of company, 2024 could be the year it expands into non-cat risk, Chris McKeown told Artemis.

Having raised around $1 billion of capital for deployment into property catastrophe reinsurance opportunities through the 2023 renewals, using its AdVantage collateralized insurer class of company, Vantage Risk has upsized commitments from its anchor investors and added new capital partnerships as well for 2024.

As a result, the company now has more than $1.5 billion of deployable collateralized reinsurance capacity to put to work next year, Chris McKeown, Chief Executive, Reinsurance, ILS, and Innovation at Vantage explained to Artemis in a recent interview.

McKeown said that, “In 2023, we were disciplined about when to deploy the capital and in the end we didn’t deploy the full billion.

“For 2024, we have the ability to deploy up to something just north of $1.5 billion. I would describe it as, we have access to the capital, should we find the opportunities in the property cat space, both in terms of returns, and terms and conditions of portfolio construction.

“We’re hoping to see continued demand for more capacity in certain corners of the market and we hope to be able to deploy more capital. But, it’s really about maintaining discipline around the risk and return we get out of the business.”

McKeown said that Vantage has been having conversations with multiple investors about the development of its collateralized reinsurance strategy, with growing interest in AdVantage as a vehicle that can deliver insurance-linked investment returns, through an aligned strategy.

As a reminder, to-date the AdVantage Retro I Ltd. structure has been focused on property catastrophe reinsurance risks and writes that business on a market-facing basis, while Vantage Risk is a meaningful capital provider to the vehicle as well.

This has worked well for Vantage in growing a footprint in property cat risks, while keeping its own balance-sheet more focused on the specialty side of things.

But opportunities to expand the AdVantage strategies remit are also being looked at, with non-cat risk seen as an area AdVantage could play a role as a partner source of capital, while allowing investors to access the returns of Vantage’s underwriting expertise more broadly.

In terms of who is investing in Vantage Risk’s collateralized reinsurance investment strategy, McKeown told us that new investors have been added for 2024 and that broadly, the capital raised comes from institutions including multi-strategy fund managers, hedge fund managers, family offices and insurance companies.

McKeown was not at liberty to disclose the names of any investors backing the AdVantage strategy, but we’ve learned from sources that Citadel Investments is one of the largest backers, having been an anchor last year and committing again for 2024.

The $1.5 billion of capital for 2024 is committed for deployment throughout the coming year, dependent on the market opportunity, with renewals at January and the mid-year the most likely points where new business will be written, although as McKeown said it doesn’t necessarily have to be drawn.

On the deployment strategy for 2024, McKeown said, “Because we have a new set of investors as well, there can’t be any mixing of the portfolio exposures. So we start fresh on January 1st with just over $1.5 billion. It’s true that some of our current portfolio expects to renew the contracts that we have, and we will look to do that to the extent that we find those opportunities attractive.

“We will look to renew the bulk of that portfolio, we would hope to, but that will be with additional investors and additional capacity.”

In 2023, the AdVantage collateralized reinsurance strategy wrote approximately 45 contracts, on a single-shot basis, largely property cat and some on an aggregate basis.

McKeown said that, “We do see an opportunity to deploy a little more broadly in 2024. When you look at 2023, there’s still some pain in the marketplace as some have been exposed to convective storms and there have been losses.

“There seems to be more demand for capital in some of those corners in the market. So, we would look to deploy more broadly, maybe even in proportional and or aggregate contracts, more broad coverage than the perils that we concentrated on in 2023. In 2023, the focus was really on US hurricane and earthquake risks, and now we see broader opportunity, given current losses, given the state of the marketplace and the demand for coverage.”

Discussing the emergence of reinsurance protection gaps, as capacity has shifted higher and retrenched further away from frequency losses, McKeown agreed that there must be a middle-ground here and that innovative thinking and product development is required for reinsurance capital to become more supportive again.

“I’m a firm believer that we need to continue to do that, to be relevant, to close that gap. There’s a lot of pain still in the marketplace. If you’re a US mutual insurance company, you’ve not had a great year.

“The property cat market has reset higher up and that had to happen, they understand that. But it’s meant there’s a major gap in their protection for their balance-sheet. We look to address that,” he explained.

McKeown also said that Vantage has been exploring whether there are new products that can serve to disaggregate catastrophe perils, making coverage that can have more utility for buyers of protection. Adding that some investors are keen to see an evolution in the product set, that could create entirely new strategies.

“We’ll have a chance to make some small, baby steps towards that, given the experience that we’ve had this year,” McKeown told us. Adding that, “I’m always hopeful that we can find a way to build more investor interest and bring more capital to the market, because we do need more capital and more efficient partnership capital.”

Discussing the ambition to expand the use of third-party capital at Vantage, McKeown told us, “There’s growing interest in non-nat cat perils amongst the investor community and we’ve always thought since day one, when we stood up Vantage, Greg Hendrick made it very clear that he wanted to provide access to partnership capital for other lines of business.

“Where we see we have expertise, relationships, product, experience, and an ability to write more than our balance-sheet can maintain, we would look to other lines of business, as well.

“So that’s definitely a plan for 2024 going forward, that whether it’s specialty lines that we write in the reinsurance business, we have a large portfolio of insurance business as well, that we would engage with investors in terms of where there might be an interest to partner with us to to expand our capacity and our offerings in the market.”

He confirmed that this is seen as a growth opportunity, saying, “We will branch out somewhat into non-cat lines in 2024, but also start building the framework to do so sustainably. We have the experience and we want to prove that out, over the next couple of years, and look to engage investors on a longer-term basis to bring in more partnership capital to AdVantage.”

But he added that, whatever business is written by the AdVantage collateralized capacity, it needs to make sense.

“Whether it’s balance-sheet capital, or non-balance-sheet capital, we want to make sure that it’s interesting, sustainable business,” saying that it’s important to stay focused on “what makes sense for equity owners, as well as third-party capital providers.”

Part of that framework McKeown mentioned comes down to people, as well as process and technology.

On the people side, Vantage has already hired a number of people to focus on the AdVantage third-party capital strategy this year, with additional talent set to join from an established ILS manager in the New Year.

And more hiring is ahead, as the company will be looking to build out more support on the business development and investor relations side, McKeown said.

Finally, we discussed the state of investor sentiment on reinsurance and ILS as an asset class and McKeown is positive, but believes some investors still need to see more evidence of returns.

“My experience is that investors are recognising the inherent, fundamental attractiveness of this non-correlating asset strategy. We still have to deal with liquidity and the knowledge that, you know, risk is changing and evolving,” McKeown said.

Adding, “But I think investors are willing to embrace that conversation again. One year alone isn’t going to do it, I think we need to show a sustainable return in this business.

“So, it might take another year or two, but I think there’s more investor interest, given the fundamental attractiveness of this asset class.”