Brit raises third party capital income, Sussex used to fund Ki Syndicate

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The specialist in insurance and reinsurance Brit Ltd. announced its 2021 results this morning and its senior executives revealed that the company recorded an increase in revenue from its third-party capital management activities for the year, while these structures also played a role in financing of the capital of its new algorithmic Ki Syndicate.

Martin Thompson, Interim Group Chief Executive of Brit, explained: “Our clear strategy enabled us to achieve a combined ratio for the year of 95.7%. This reflects the combination of an excellent attrition ratio, prior year reserve releases and increased revenue from our third-party capital management and MGA businesses.

The company made a profit of $247 million for 2021, much better than 2020’s loss of $236 million.

Gross written premiums rose 32% to $3.24 billion for the year, while a combined ratio of 95.7% meant the business was technically very profitable despite a disastrously difficult year.

Gavin Wilkinson, Group Chief Financial Officer, also said: “We continued to benefit from the growth of our third-party capital vehicles and our investments in MGAs. Working with our financial and distribution partners is an important part of Brit’s strategy, strengthening our leadership position, strengthening our customer proposition and making our spend base more efficient.

Brit’s primary third-party capital vehicle is now branded as Sussex Capital, with guaranteed reinsurance products underwritten and the structures also used to channel capital into its other underwriting vehicles from third-party investors.

Underwriting profit, in terms of revenue attributable to third-party capital providers but earned by Brit, was $2.5 million for 2021, suggesting investors suffered losses during the year, as in 2020, $6 million in revenue earned by Brit was shared with investors in the third-party capital structures.

“Generating such subscription-related income, from managing third-party subscription capital and from our business contracts with third parties, remains an important part of Brit’s strategy and has the benefit of helping Brit to manage its expense base,” the company explained.

Underwriting fee and commission income earned by Brit reached $56.6 million for the year, much better than the $29.7 million earned in 2020. Part of this amount will be related to capital activities third-party insurance-linked securities (ILS) under the Sussex Capital Brand.

The Sussex Capital ILS platform and third-party capital platform have proven particularly useful in 2021 and have been instrumental in more than just capital management and ILS-like transactions for investors.

Part of that was focused on protection, as Brit had cover in force from its catastrophe bond issued in December 2020, the $300 million Sussex Capital UK PCC Limited (series 2020-1) which was issued to the help from his British ILS vehicle.

But, Brit has also been seen using Sussex structures to funnel funding to his newest initiative, algorithmic underwriting platform Ki and his syndicate at Lloyd’s.

Ki Financial Ltd benefits from a letter of credit facility which delivers a share of the funds to Lloyd’s for its Syndicate 1618 through a separate Sussex Re account.

For the 2021 underwriting year, this was a $50 million funding contribution to the Ki strategy, but it appears that at the end of 2021, in time for the current 2022 underwriting year , this letter of credit and funding for the Ki Syndicate strategy through Sussex Re increased to $130 million.

This shows that Brit is cleverly using its ILS structure to funnel what is presumably funding from third-party capital into another of its syndication businesses, specifically the algorithmic underwriting business Ki.

As a result, the use of third-party capital is growing in importance, as is the Sussex Capital platform and the ILS infrastructure it has provided to the business.

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