Cayman Islands-based Northern Re has enjoyed a strong start to its operations, receiving a “very warm welcome” from the market in 2023, and anticipates that conditions will continue to improve into 2025, driven by the ongoing growth trajectory of the MGA and program markets.
Northern Re’s comments stem from an interview with Reinsurance News, in which the firm’s founding brothers, Anthony and Peter McKelvy, discussed a string of industry hot topics.
Commenting on what Northern Re has done to differentiate/innovate compared to other players in its first year of growth, Anthony McKelvy said, “Northern Re had a strong start to operations in what I would describe as a very warm welcome from the market during 2023.
“We target high-frequency, low-severity casualty business and pride ourselves on the ability to underwrite and partner with premier MGA groups, program carriers, as well as regional and mutual insurance companies.”
Anthony continued, “The reception to our innovative capital model has allowed us to execute transactions with more than 10 different insurance companies and receive approval to work with dozens of them. This traction is due to both a deep industry network and the innovative way in which we have configured our capital stack.
“The major differentiator between us and some of our peer companies being additional unencumbered surplus held at the onshore level. The surplus brings our premium to capital ratios in line with many rated markets.”
Anthony added that Northern Re’s conservative approach is then compounded as it only provides its insurance company partners with cash collateral in trust and does not utilize letters of credit.
“We do all of this while maintaining a sound risk-adjusted return projection for our major backer – one that understands re/insurance as an asset class and is focused on generating long-term capital appreciation,” he explained.
Anthony went on, “Second, building technology is really in Peter’s DNA and we have made strides during our first 18 months to build for scale. Rather than hire around data entry and manual operations, we have engaged new-age technology platforms and created our own database infrastructure to significantly reduce costs.
“Beyond the underwriting insights derived, we’ve always been committed to driving financial efficiency through our platform and partnerships. This also allows us to utilize data in a more proactive sense, as monthly BDX and submission data is digestible and translated in such a way that will drive better performance.
“Northern is also helping to reduce the administrative and credit risk burden of regular collateral calls by automating this process for specific carriers we support.
“This is done through our proprietary predictive modeling platform combined with the simplicity of providing cash collateral into a trust account.”
Speaking on how Northern Re has capitalised on the recent favourable market conditions, and whether these will remain, Peter McKelvy noted that Northern Re was on track to achieve its original 2023 goal of $50M in GWP on $25M in capital when the events of late-Summer presented an opportunity to accelerate the business.
“This opportunity, however, was coupled with increased scrutiny of collateralized reinsurers and their security. Program carriers ran enhanced diligence processes and evaluated counterparty risk on a very detailed level – something that Northern had prepared for during the leadup to its launch rather than in the moment,” Peter said.
He continued, “On balance sheet financials, structure, and overall strategy, Northern is committed to being completely transparent with its counterparties (while maintaining its confidentiality covenants).
“In an effort to get counterparties comfortable with our underlying business and performance relative to the overall asset base the Company supplies a quarterly aggregate analysis of its portfolio alongside committed capital and available surplus.”
Peter concluded, “We do expect conditions to continue to improve in 2025 as the MGA and program market continues its growth trajectory. There are so many talented underwriting organizations that need capacity within the program sector, and larger markets aren’t always able to fill those gaps.
“Continuing the responsible growth trajectory alongside trusted insurance and reinsurance partners, our N12M GWP has increased to 200M following 1/1/24.”
Stay tuned into Reinsurance News to hear more from the McKelvys, who in part two of this interview discuss their outlook on the casualty market and how beneficial has it been to avoid some of the challenges associated with prior years.
