Like its fellow up-for-sale (re)insurer Aspen, Lloyd’s carrier Chaucer has dramatically hiked its reinsurance spend in 2018 after last year’s heavy losses, re-Insurance.com can reveal.
Chaucer is upping its reinsurance spend by 30 percent in 2018 compared to last year, primarily by increasing its use of quota share agreements, which include the relationship with its newly-established Bermudian sidecar Thopas Re.
Chaucer - which is owned by US specialty group The Hanover - anticipates spending $441mn with reinsurers in 2018, a $100mn more than last year.
It will be the highest ever amount ceded by the carrier and is almost double what it spent in 2015 ($237mn). It anticipates writing $1.35bn in 2018.
Of its total reinsurance spend, 64 percent is on quota share cover, which means the carrier is spending 21 percent of its forecast 2018 premiums on proportional reinsurance - notably higher than prior years (see chart).
But in a presentation to potential acquirers, sell-side bankers Goldman Sachs said prospective new owners could increase Chaucer’s future earnings potential by increasing its net writings.
“Retention of greater risk is a potential lever to enhance Chaucer’s earnings under new ownership with different risk appetite and capital allocation” explained Goldman Sachs.
Thopas Re - which was established with $150mn of Capital in December 2017, including $95mn of third-party investor capital - is expected to become the largest individual reinsurance counterparty with a forecasted $29.5mn of ceded premium, according to the presentation.
Thopas Re was formed to provide quota share capacity to Chaucer’s US and international property catastrophe portfolio.Two A+ rated counter-parties then follow with a budgeted $29mn and $27mn of ceded premiums forecast for 2018.After quota share cover, Chaucer’s second largest reinsurance product purchased is excess of loss. Facultative and stop loss cover each account for 6 percent of the syndicate’s reinsurance spend.Chaucer told potential acquirers that its quota share reinsurance program would enable it to recover almost 80 percent of its gross D&F losses from 2017.
Ahead of last year’s flurry of catastrophes, Chaucer recruited two new D&F underwriters to and increased its maximum line by 100 percent while buying a 50 percent quota share to “control its net risk and aggregate exposure”.
“In 2017, Chaucer doubled the amount of business seen by the team, increased gross income by $30mn and, impacted by four major catastrophe events, recovered 78 percent of its gross losses from reinsurers”.
In addition to its flagship Syndicate 1084, Chaucer manages and has a 57 percent line on the uber-profitable nuclear Syndicate 1176.
Syndicate 1176 - which is a member of the British nuclear insurance pool and is underwritten by Michael Dawson - buys an $111mn xs $90mn XoL layer and then a further $97mn xs $202mn layer.
Chaucer then benefits from a $42mn loss franchise cover.
Aspen - which is also using the same Goldman Sachs team to sell itself - revealed earlier this year that it bought a $125mn adverse development cover and anticipates ceding more business in 2018 after a heavy loss-making year in 2017.
Second round bids for the Bermudian (re)insurer are due tomorrow and potential bidders are thought to include alternative investment groups Apollo Global and Blackstone.
The Hanover acquired Chaucer for £292mn in 2011.
Chaucer declined to comment.