New York and Cayman-based Northern Reinsurance has successfully tripled its committed capital by securing an additional $50 million of funding, bringing the total to $75 million.
According to Northern Re, the proceeds will enable it to capitalise on favourable market conditions, also providing it with an opportunity to expand its partnerships with leading insurance companies with a focus on the high-frequency, low-severity casualty market.
Northern Re explained that it deploys capacity via a hybrid approach to the traditional collateral model, “bifurcating the capital stack into company surplus, as well as risk capital.”
The firm went on, “The latter is representative of Northern Re’s commitment to counterparty security, as it maintains Schedule F collateral in a trust account, held for the benefit of carrier partners.
“That collateral is posted as cash and then invested in qualifying, highly-rated fixed-income instruments. By posting in cash, Northern Re ensures liquidity and simplifies the process through which carriers can access the collateral.”
Northern Re Co-Founder Peter McKelvy, commented, “This was an important decision we made early on in our lifecycle as we continued to evaluate how we could make the process with our counterparties easier and more secure.
“We are extremely comfortable trading within the guidelines of a trust, according to the state statutes or Credit for Reinsurance Model Act, and determined that cash would better meet the needs of our partners.”
The firm also noted that it further differentiates itself through the existence of an onshore balance sheet, Northern Reinsurance Segregated Portfolio Holdings (Northern Holdings).
Owning each of the individual segregated portfolios of the company (the SPs), Northern Holdings “maintains unencumbered capital to provide another layer of financial security in the event of adverse development within any one of the SPs,” Northern Re said.
Co-Founder Anthony McKelvy observed, “This distinction is important because it allows our carrier partners the visibility into additional risk protection relative to our overall portfolio size, while providing them assurance that this capital is not committed to any individual premium trust.”
Further, the firm said it deliberately targets low premium to capital leverage, such that Northern Holdings’ balance sheet “remains well positioned to manage any unexpected volatility or liabilities which may arise from the historically stable portfolio.”
Northern Re announced its launch with an initial capitalisation of $25 million provided by a private investment group earlier this year.
The firm said it is now a partner to several of the most sophisticated MGAS and largest fronting insurers in the market. Beyond the MGA segment, it has also supported mutual and regional insurance company opportunities as the market continues to harden.
Northern Re concluded that these partnerships will be critical as it expands, targeting a total committed capital over $100 million for 2024 to further establish it as a “longstanding provider of stable reinsurance capacity.”
