New Ocean Capital Management Limited is a Bermuda-based asset manager with expertise investing in reinsurance risk products. New Ocean is focused on providing investors with risk-adjusted returns in the insurance and reinsurance convergence market. Chris McKeown has 30 years of experience in the reinsurance industry, including six years managing a traditional reinsurance portfolio (ACE Tempest Re), five years actively managing capital invested in alternative reinsurance risk structures (CIG Re/New Castle Re). Mr. McKeown also spent 15 years in the insurance brokerage business, in both business production and senior management roles (Guy Carpenter).
- New Ocean Capital Management Limited manages three funds, with a focus on the reinsurance market. Can you briefly tell us about your investment philosophy, the opportunities in the reinsurance markets as well the key features of each fund?
New Ocean Capital is dedicated to providing investors with diversifying returns through direct investments in reinsurance strategies. We manage three funds that are principally oriented to Property Catastrophe Reinsurance. We have designed these strategies to provide investors with access to the broadest possible array of catastrophe reinsurance risk in the current market.
Focus Cat Strategy – A portfolio of high yielding underlying products that are mostly customised for the counterparty’s unique risk management requirements. Selection, portfolio construction, and active portfolio management are all key to our ability to deliver returns.
Market Value Strategy – A portfolio of remote, low yielding, risks, with some proportion of the portfolio invested in cat bonds. The objective of this strategy is to provide investors with an enhanced return relative to a cat bond benchmark.
Diversified Strategy – A diversified portfolio that reflects the traditional global reinsurance market, providing a market ‘beta’ risk/return profile.
- What are the different kinds of instruments you trade for each of the fund, and what would be the average holding period for your funds’ investments?
We can trade any and all types of available underlying instruments, or products. The Focus Cat Strategy concentrates on private reinsurance transactions, and Market Value holds both private reinsurance contracts as well as 144A Cat Bonds. Both strategies can also make use of ‘private’ cat bonds, derivative contracts such as Industry Loss Warranties, or parametric driven structures. They can invest in both proportional and non-proportional contracts as well.
The Diversified Cat Strategy invests in one product, which is a modified quota share of XL Catlin’s significant portfolio of traditionally traded Property Catastrophe reinsurance.
- Please share with us some types of potential catastrophic events which your funds are exposed to, and what your geographical weighting is across your allocations?
The concept of three strategies, besides providing a spectrum of returns available in the market, also provides different weighting when it comes to risk, both from an absolute perspective but also from a geographic perspective. Diversified Strategy is positioned to be as diverse as possible within the context of the global reinsurance marketplace. Focus Cat strategy is named so for a few reasons. One of them being that it will be more concentrated geographically that a traditional reinsurance portfolio. Market Value strategy is geared to more remote risk, the preponderance traded is mostly exposed to US and European risk.
- How does the Market Value Cat Fund compare to the Focus Cat and Diversified Cat Fund in terms of risks involved? What difference do you see in terms of their unique risk reward profile and the opportunities going forward?
Market Value seeks risk/return among contracts that are less exposed to frequency losses, yet more exposed to extreme severity events. Because a large proportion of the portfolio is held in Cat Bonds, there is a greater emphasis placed on liquidity than overall absolute return, compared to our other funds, which are less liquid. We see this strategy as being more of a ‘fixed income proxy’ strategy, for those investors looking for lower risk in terms of frequency.
- Can you share with us some of the risk management tools you have put in place for your funds? While uncorrelated to the traditional kinds of market risk, how do you manage your downside risk given a major insurance peril?
We employ a risk management system that allows us to measure underlying contracts, their effect on the overall portfolio, and value of various alternative portfolio constructions and hedging strategies. The technology also enables us to make transparent trade allocation decisions and generates a quarterly risk report for investors.
Within our risk management framework, we utilize output from all vendor models, plus we have access to the proprietary models developed at XL Catlin as well as our own proprietary risk assessment tools.
- What determines your decision in your trading position with respect to the risk you are willing to take? How would you balance out your allocations vis-à-vis the probability of the occurrence of a catastrophe?
The Portfolio Managers decide the merits of any one particular transaction on its own financial merits, how it optimises the portfolio, and various risk/return metrics, all within the investment guidelines of the strategy.
- Given the entrance of more players in the reinsurance market post-Hurricane Katrina, how competitive has it become to generate attractive returns for your investors? Could you share with our readers the level of leverage you employ to scale up returns?
We believe that reinsurance as a true alternative asset strategy should be a fundamental consideration for any institutional Investor. The market consists of sophisticated competitors and counterparties. Both traditionally rated balance sheets, as well as Asset Managers, continue to compete for the traded annual nominal limit, which does not fluctuate significantly over time. At New Ocean, we see reinsurance as an absolute return strategy, as financial leverage can in some scenarios introduce unwanted correlation to other asset strategies.
- What are the current assets under management for your various funds and their planned capacity? Given the appeal of uncorrelated returns of insurance linked hedge funds for investors, and the recent unexciting performance of traditional hedge fund strategies, have you seen increase in investor interest for your offerings? What are some of the challenges that you face when marketing a re-insurance hedge fund strategy?
We believe our strategies have considerable growth potential. We are nearing our third year anniversary, and as such, we believe that investors will start to take note of our performance, and differentiated products, and that we hope to see more capital committed over the course of 2017.
- Please share with our readers your outlook for the global reinsurance industry. How well do you think your fund is positioned to tap into the opportunities especially in relation to its peers in the industry?
We obviously believe in the long-term value of the ‘Hybrid’ Asset Management model. New Ocean is such a manager. Our team of nine professionals, with many years of active industry experience, is independently managed and operated. Our affiliation with XL Catlin means that we also are able to capitalise on access to a world class sponsor company that provides value in terms of production capabilities, operational efficiency, and strategic insights. New Ocean, working collaboratively with XL Catlin, delivers dependable and scalable investment strategies, and will over time provide more industry product diversification and consistent growth opportunities.