XL educates on new Stone Point venture
XL’s executives are busy at Monte Carlo this year talking to clients and investors about its new joint venture with Stone Point Capital, a new Bermuda-based company revealed in July that will act as an investment manager in insurance-linked securities (ILS) and other reinsurance capital markets products.
When operations are fully commenced, the focus of the company will be on ILS and index-linked products as well as on XL-designed reinsurance products. The parties intend to invest up to an aggregate of $135 million in funds to be formed, alongside potential third party investors.
XL will hold a 75 percent stake in the new venture, the remaining 25 percent held by Stone Point.
Craig Wenzel, senior vice president – capital markets at XL Insurance, explained that XL has partnered with Stone Point due to its long and impressive track record in the capital markets space and its deep understanding of the re/insurance industry.
He said that XL hopes that through the new venture it will be able to deliver a best in class platform for the industry, one that will leverage XL’s underwriting expertise, analytics, branding and distribution and Stone Capital’s expertise around management of capital.
Wenzel said that the industry needs to be “unemotional” about the cost of capital and the potential implications of the influx of alternative capacity. More capital—whether it is traditional or alternative—is always good for cedants, he said, although he agreed that the industry must look to establish a balance between the two sectors of the market.
He said that new capital will “acknowledge and reinforce” existing reinsurance relationships, rather than cannibalise them, with reinsurers able to offer clients a more diverse selection of reinsurance solutions. Wenzel added that the increasing sophistication of insurance buyers is “forcing us all to up our game”, with XL’s new venture part of this drive.
Wenzel warned companies against taking shortcuts into the alternative space, however, particularly when it comes to data and granularity. He said that under-pricing such exposures could easily end in disaster. He said that the industry should be pursuing the creation of a robust, complex and vibrant market that will include both traditional and capital market solutions.
