Brit targets ILS growth with Sussex Capital: Denton

Specialty insurance and reinsurance player Brit Ltd. is targeting further growth of its insurance-linked securities (ILS) activities, with expansion of the Sussex Capital platform anticipated, according to Chris Denton.

Brit operates a range of third-party reinsurance capital structures, including the Versutus sidecar vehicle and the Sussex Capital insurance-linked securities (ILS) and collateralised reinsurance platform.

Last year, the company expanded its ILS activities, raising fresh third-party capital within the sidecar it operates, as well as for its Sussex ILS fund platform.

Brit also launched a new ILS fund to directly support its syndicate activities at Lloyd’s.

Speaking with Artemis, Chris Denton, Group Head of ILS and Capital Management at Brit, explained that the success continues and the appetite for more is evident.

Brit raised some more third-party capital into the ILS funds it operates in time for the mid-year reinsurance renewals, Denton explained in an interview.

“We have raised capital into our diversified fund, which is our flagship property catastrophe fund, although a number of investors decided to pause at mid-year and wait for the 1 January 2021 renewals given the disruption caused by COVID-19.”

Despite the pause and interruption caused by the pandemic though, Denton explained that, “Encouragingly, appetite from investors continues to remain strong in 2020 and has been growing, despite the backdrop of COVID-19. Notably the rating environment continues to improve, and pricing conditions are arguably the most attractive they have been for a decade.

“Appetite is further supported by the proven low correlation of the asset class to global financial markets, which has driven an uptick in demand from investors who are allocating more capital from their portfolio to ILS.”

Leading Denton to be positive on the prospects for ILS in general.

“We expect allocations to increase, especially from those already in the sector, as investors continue to realise the full benefits of ILS as an important tool for diversifying their portfolios.”

Sussex Capital is expected to be a beneficiary of current market conditions, with improved reinsurance rates translating into better return prospects for investors and Brit will seek to make the most of the environment it seems.

Denton said, “We are pleased with progress at Sussex Capital. We are currently looking at opportunities where we can accelerate our growth and capitalise on the hardening rates in the market. We believe the rate momentum and increased interest in the asset class will be positive drivers for Sussex. Also, we’re in our third year, which is a key milestone and our track record is strong.

“Sussex is a core part of Brit’s strategy, so we continue to focus on maintaining the high quality of our portfolio and developing our track record. Sussex is in a great position to offer access to a mature portfolio as rates harden into 2021. The core portfolio takes a share of Brit’s property reinsurance book, providing scale and balance, as well as growth.”

The synergies between Brit and Sussex Capital have also been strengthened through the nascent fronting relationship now in place, as Brit’s rated reinsurance company is now fronting the collateralised funds under management at Sussex.

“We executed on our new fronting strategy at midyear, utilizing Brit Re’s rated balance sheet on a select number of opportunities,” Denton explained. “As we’ve talked about in the past, this further enhances the efficiency with which we are able to provide our investors access to our underwriting proposition. This is a very positive development of the Fund’s strategy and one where we expect to grow our allocation.”

Also of note is the fact that Brit is actively utilising its UK based ILS regulatory structure, Sussex Capital UK PCC Limited, which has been put to use in underwriting certain deals for the Sussex ILS funds.

“We are actively using the UK risk transformation vehicle,” Denton said. “It is still relatively early days for the UK ILS market and we expect it to evolve over time as the types of transactions develop and confidence in the market continues to grow. We are pleased to be at the forefront of developments in the UK and believe that this places us well as opportunities arise.”

Looking ahead, Brit aims to capitalise on the platform and near three-year track record it has built with Sussex Capital, with growth on the agenda.

“Tthere are no surprises here: our plan is to grow in 2021, continuing the strong trajectory of the last few years. ILS is, and continues to remain, an important part of our growth and Brit’s strategy. While the COVID-19 impact will take time to work through, rates continue to trend well and we are able to offer attractive returns for investors,” Denton explained.

Adding that, “Our outlook for the ILS market is positive for 2021 – the Covid-19 outbreak has led investors to turn increasingly to alternative asset classes and we expect ILS funds to benefit from this. However, market participants still need to deliver; investors have become far more nuanced with regard to how they participate in the sector. In addition to this, investors will be more risk-averse in a negative economic backdrop, regardless of which asset class they are invested in.

“As such, we expect investors will consider their options carefully. Historically, the spread between the best and worst performers in the market has been significant – those who are most transparent, have delivered consistency and nurtured the relationships with their clients will be the ones which succeed next year.”