Ledger launches casualty ILS fund to bring alternative capacity to MGAs

Ledger Investing has launched an ILS fund called Nanorock Fund focused primarily on investing in casualty risks that will bring multi-year capacity to MGAs as well as program insurance companies looking for an alternative to traditional reinsurance.

The move is the latest at the frontier of the ILS market to create new opportunities for investors to access a more diversified portfolio of risk than property cat, which has so far dominated the space.

For MGAs it brings the prospect of efficient and reliable long-term capital at a time when capacity coming from traditional (re)insurers has proved to be inconsistent in recent years as a result of shifting risk appetites.

The creation of the fund also allows MGAs to access capital directly from pension plans and other institutional investors that otherwise they may not have the scale to reach.

Meanwhile, the Ledger platform allows the blending of programs in different segments and business lines into single securitizations as well as significantly greater speed to market.

The new Bermuda-domiciled fund is backed by an unnamed large pension plan that sources said already has a strong commitment to the ILS market.

Nanorock Fund will invest in workers’ compensation, general liability, commercial and private passenger auto liability as well as other casualty classes in the US and Europe.

It will access the risk through the Samir Shah-led insurtech’s Ledger Connect platform, which was developed to match insurance risk to capital markets and provide transparency to investors by allowing real-time access to the performance of the insurance programs being securitised.

The fund is managed by Ledger ILS Managers and brings stable capital to the platform. Until now Ledger has been executing private placements with a range of investors that have already resulted in the securitization of more than 25 insurance programs to provide in excess of $170mn of capital.

Commenting on the ILS fund launch, former AIG head of capital markets Shah said: “The substantial commitment and strategic focus of the investor marks a pivotal point for the institutionalisation of casualty securitization.

“The market continues to support our conviction that the most promising path for exponential growth is by leveraging technology to bring the ultimate capital providers closer to the risk originators, standardize securitization structures and provide industry-leading risk analytics and transparency.”

Ledger works with fronting carriers to provide highly rated paper for programs that are securitised through the platform.

The insurtech is thought to have worked with several fronting carriers, including hybrids such as Accredited, Trisura, Incline and Everspan as well as State National.

The structures are understood to use a capped quota share, including a risk corridor retained by the MGA that helps provide alignment of interest between the various parties in the transaction.

Stable and efficient capacity

In an interview with this publication, Ledger Investing’s chief revenue officer Gary Maier said the platform provides long-term capital solutions that “empower” MGAs to grow and expand their business with improved economics and better ceding commissions by cutting excess costs from the transaction.

Although he wouldn’t provide details of specific structures or fronting partners, he described Ledger as a “one-stop shop” that provides MGAs with a direct connection to efficient and reliable capital, as well as access to highly-rated fronting carriers.

“This translates into addressing most pain-points for MGAs – multi-year capital commitments for up to a 3-year deal, blended programs with different segments and lines of business, and faster time to market,” the executive said.

Capacity has been secured through the platform on program deals in as little as five weeks, with the typical gestation well below the four to six months a program can take to get to market using the traditional model.

“(Re)insurers are constrained by their high fixed cost of permanent capital and can’t flex with market conditions. Ledger’s solution provides standardized securitization structures and gives MGAs direct access to efficient and reliable capital,” Maier added.

Ledger is aimed at MGAs that have a strong grasp of their data, which it combines with modern statistical methods and real-time computing to rate the risk in what it says is a transparent, objective and reliable way.

Ledger’s COO Brad Fischtrom added that users of the platform can benefit from the greater efficiencies of securitization over traditional reinsurance.

“Our platform matches insurance risk originators directly to institutional investor capital, skipping over several intermediary value chain steps and with almost no expense overhead,” he said.

The executive suggested the creation of the fund also allows Ledger to overcome large investment size constraints that challenge the ability of MGAs to access institutional investors.

“Through the fund we are able to package together multiple MGA portfolios and deploy capital to attractive programs that wouldn’t otherwise be large enough to justify due diligence,” he continued.

Investors in Ledger include wholesale giant Amwins and MassMutual Ventures.

The Insurer comment

Ledger has so far been operating under the radar, at least in relative terms – although its activities in the program sector are increasingly attracting the attention of MGAs.

It has already been actively securitizing programs into private placements with ILS investors on an individual basis.

But the launch of an ILS fund targeting casualty risk could be a game changer on a number of levels.

For investors, it provides access to blended portfolios of programs with what it is claimed is a high degree of transparency around data – which is seen as table stakes for anyone trying to get ILS capital comfortable with casualty risk.

The demand for more diversified pools of insurance risk that are not correlated to other asset classes is strong among investors, if they can find the right conduit to access it with the right caps and controls in place.

For MGAs, it promises to provide access to alternative capital that has largely been out of the reach of all but the very largest players in the program space.

And by offering multi-year capacity it could also bring a greater degree of certainty and take MGAs and program administrators out of the cycle of having to re-up with a new carrier partner every time there is a change in appetite.