It wants to move away from the traditional “one-size-fits-all” model
The reinsurance industry is undergoing a once-in-a-generation shake-up. An elevated interest rate environment, macroeconomic uncertainty, and increasing natural catastrophes have underscored the need to manage capital more efficiently.
To help clients adapt to the rapidly shifting risk landscape, Augment Risk has looked to focus on the individual balance sheet, not the class of business.
Launched in mid-2023, the global reinsurance broker has already built momentum, binding $1 billion of premium in its first year of business. It is backed up by $100 million in funding from private equity firm Altamont Capital Partners.
Appointed CEO in December, Andrew Matson (pictured) has been tasked with leading Augment Risk’s differentiated charge into the reinsurance market.
Speaking to Insurance Business, Matson said the startup’s early traction shows that clients and reinsurers are ready for a bespoke approach.
“One billion of premium is not really a measure of value; it’s a measure that we’ve been able to convince clients to buy in that unusual way. But much more importantly, we’ve convinced reinsurers to sell capital in that way,” he said.
‘Client, not class of business’ approach to reinsurance
Matson brings a wealth of re/insurance experience from Aon, where he served as CEO of global MGA and portfolio solutions, and most recently from McGill and Partners, where he was head of portfolio solutions and later head of structured solutions.
“I’ve always had a client-centric view of providing capital, and it particularly evolved at Aon,” Matson said. “I [spent] more than 15 years working in a structured solutions business understanding capital. It was just an area of the business that I really wanted to accelerate.”
Veering away from the traditional “one-size-fits-all” approach, Augment Risk offers reinsurance solutions from its locations in London, Dublin, Bermuda, Miami, and Cayman.
Its single P&L approach enables clients to mitigate any potential disruptions in their business by reallocating capital using tools that assist them in effectively managing the risks associated with the evolving climate. It also allows for multiple risks to be managed simultaneously, instead of a product-driven approach which is siloed by business line.
“Understanding the logic of capital was the rationale behind the business, i.e. we sell the clients what they need to buy in the way that it’s most easily digestible for them,” said Matson.
Client conversations have evolved and necessitated an innovative take on reinsurance and capital, he added.
“It’s much more about walking down the corridor to see the CFO, and it’s a capital conversation, and yet, [reinsurance brokers] all persist in selling products in boxes, and they sell so they hire people in those silos,” Matson said. “We decided we build the business from the ground up exactly aligned to how clients think.”
Creating a mutually beneficial trade for reinsurers
Augment Risk’s entry into the market comes at a time of significant challenges in reinsurance
“If you look at their statistics over the last five to six years, it’s not a great story,” said Matson. “If you look at the average ROE (return on equity), the margins for ceded profitability from clients to reinsurers, interest rates and inflation affecting their costs… I don’t imagine it’s a particularly fun job being a reinsurer when the brokers persistently say the price must go down.”
Matson said Augment Risk’s “boutique” service that emphasizes partnerships between clients and reinsurers is a valuable offering in the backdrop of those challenges.
“We’re providing [reinsurers] a new distribution stream in a way where you can create an executive-level-to-executive-level relationship with your client,” Matson said.
“The product isn’t defined just by price. Price is obviously important, but if you’re able to provide longer-term capital for a client, so they don’t have to do a renewal every year, for example, they can focus on growing their business rather than placing their reinsurance and managing their capital.
“I think reinsurers have the motivation to want to deal with us because we’re bringing something meaningful that can turn the dial. It’s a mutually beneficial trade: the reinsurers get the premium and new distribution that they want, and the clients get the certainty and breadth of capital that they need.”
What’s next for Augment Risk?
Only a few months after its launch, Augment Risk launched a global parametric specialty division, headed by Kurt Cripps. The team will focus on tailoring parametric reinsurance products to help clients manage natural catastrophe exposures.
Matson is keen to capitalize on the momentum that Augment Risk has generated in 2023.
“We’ve secured enough capital with [Altamont] for substantial growth probably for the next three to five years,” he said. “We’ve been fortunate to have a good start with some clients and relationships that have joined us very early on.”
Over the next two to three years, Augment Risk will focus on its specialty business, which includes prospective reinsurance, retrospective reinsurance, a service offering for MGAs, and parametric products. It is also focused on raising its headcount in the short to mid-term.
“It’s not logical for Augment Risk to buy all the Cat models, hire Cat brokers, and go head-to-head with Guy Carpenter. It’s not what we’re trying to do. We’re running a capital efficiency game, rather than a purely price game,” the CEO added. “So, I think you’ll see a 70% business split into those specialties, which lend themselves much more to the way clients think.”
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