From extreme weather events exacerbated by climate change to a volatile and uncertainty market environment, the reinsurance industry has buffeted its share of headwinds in the past few years.
Demand for reinsurance has jumped amid heightened natural catastrophes losses in the primary insurance market, and Aspen has been able to provide capacity by leveraging its alternative capital.
“It's been critical for us during a period of increased demand from our clients, to be able to continue to provide more and more capacity in a market where there have been significant exits from some of our competitors,” said Aspen Capital Partners CEO Brian Tobben (pictured).
Aspen Capital Partners sources risk capital to support the wider group’s underwriting activities. The unit organizes its activities around its primary capital sources, which include traditional treaty reinsurance and capital markets investors.
“Our outwards reinsurance team sources traditional capacity from reinsurance partners, typically in the form of quota shares or excess of loss treaties, and our capital markets team raises capital for sidecars, cat bonds, and managed funds,” Tobben told Insurance Business.
The business’ top team strongly believes that capital markets investors are key partners in its future growth and innovation efforts.
Aspen Capital Partners, which includes Aspen Capital Markets (ACM) and the company’s outwards reinsurance business, has allowed the specialty firm to source, price, and place risk with capital, whereas in other organizations, these functions can be separate. It also enables the (re)insurer to offer a broader choice of solutions to its clients, according to Tobben.
“The Capital Partners team is closely connected with our underwriting team,” said Tobben. “So, when we are presented with a new opportunity, we bring our underwriting and capital partners teams together to assess the potential deployment of capital from both our own balance sheet and our external capital partners, and this allows us to bring a lot more value to our clients.
“We not only bring our paper and our balance sheet and our underwriting expertise to the transaction, but we can bring additional capacity and help our insureds and cedents gain access to capital markets.”
The growth in Aspen’s capital markets business has been possible through longstanding relationships with investors, as well as its ability to connect lines of business to third-party investor capital, according to the CEO.
“We are certainly seeing strong growth in our cat ILS franchise, but our longer-tail lines of business have really been a differentiator in the capital markets for us,” Tobben noted.
Looking forward, Tobben expects a strong underwriting environment to provide continued growth for the business. He also pointed to Aspen’s significant investment in evolving capital market structures beyond the historic focus of natural catastrophe risks.
“We tend to grow and develop new relationships when there's a market need for capacity,” said Tobben. “But the non-cat part of the business has been the most significant story over the last couple of years, and probably provides the greatest opportunity as the company moves forward.”
Aspen Capital Markets (ACM) operates as a third-party asset management platform, providing capital market investors with direct access to actively managed fund products and sidecar investments.
The capital markets business, which had its inception in 2013, generated total fee income of $61 million in the first half of 2023.
“We’ve made a significant investment over the last few years to make sure that we're well positioned to respond to a range of investors across our entire suite of underwriting products,” said Tobben.
“Maintaining that capability is critical. Then as investor appetite changes from different sources, being able to adapt those structures to the right partner and match it with the right risk, whether that’s short-tail cat risk or long-tail casualty risk, is absolutely critical.”
Additionally, Aspen Capital Partners takes a holistic and integrated view of reinsurance capacity in the capital markets, according to Tobben.
“We’re agnostic on structure,” Tobben said. “We make use of a full range of instruments from traditional treaty reinsurance to cat bonds, sidecars, and managed funds. And we look at each one of those capital sources under a single analytical framework.
“What we're really trying to do is match the high-quality risks that our underwriting teams select, to the best source of capital. We want to make sure that we have a broad range of capabilities so we can respond to the market opportunities, but it's less about specific goals around innovation as much as it is about solving the problem for our insureds and cedents and creating value for our capital providers.”
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