The ratings reflect Kelvin Re’s strong risk-adjusted capitalisation, an experienced management team that has produced positive earnings since inception in 2014, and a solid risk management framework. Offsetting rating factors include the company’s underwriting concentration in natural catastrophe reinsurance, the high level of dependency on Credit Suisse’s Insurance-Linked Strategies team, and the increased investment risk arising from a non-traditional investment strategy, with approximately 50% of investments allocated to blue-chip hedge funds.
Kelvin Re is a privately owned start-up company based in Guernsey that provides short-tail property and specialty lines reinsurance. Since it commenced operations in late 2014, the company has derived its business solely from the distribution reach of Credit Suisse’s Insurance-Linked Strategies, a leading insurance-linked hedge fund, which has approximately
During 2016, the company has generated a globally diversified portfolio of natural catastrophe reinsurance exposures in excess of
Given its higher risk profile, Kelvin Re has developed a robust risk management framework, which centres on advanced modelling capabilities and flexible retrocession arrangements to manage underwriting risk. Due to its changing profile, the company also performs regular stress testing to ensure that its capital position remains supportive. In addition, the company utilises the expertise of specialist third party investment advisors to manage its exposure to hedge funds.
Current headwinds in the global reinsurance market continue to present challenges for Kelvin Re’s business plan. So far in 2016, the company has been able to secure top-line revenues in line with its original targets, and is expected to report a profit for the year, but underwriting margins and investment yields remain subject to the pressure of the current challenging operating environment. Moreover, Kelvin Re’s investment in hedge funds generates the potential for a reduction in liquidity and increased investment risk. However, these risks are partially offset by alternative sources of liquidity.
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