AdVantage provides Vantage “accretive income” and aids profitability: AM Best

Rating agency AM Best has said that use of the AdVantage collateralized insurer class of company has helped Bermuda headquartered insurance and reinsurance firm Vantage Group to become more profitable, while also driving a source of accretive income.

As we reported before, Vantage Risk has plans to leverage third-party capital in a broader set of underwriting lines in future and has over $1.5 billion of capital to deploy using its AdVantage collateralized insurer class of company in 2024.

The company had raised around $1 billion of capital for deployment into property catastrophe reinsurance opportunities through the 2023 renewals, using AdVantage, but now has upsized commitments from anchor investors and new capital partnerships, with an appetite to look beyond nat-cat as well.

But, ambitions for the future aside, AM Best believes AdVantage has already proven itself as a strategy for the company.

AM Best affirmed the ratings of Vantage Risk and its US based underwriting subsidiaries last week and commented on the move to underwrite property catastrophe risks off its own balance-sheet, backed by third-party capital and using the AdVantage structure, clearly seeing it as a positive step.

“In the first two years, underwriting income was adversely impacted by elevated catastrophe losses,” AM Best explained. Going on to say that, “However, as Vantage Group has continued to grow to scale in 2023 and moved property catastrophe business off its balance sheet through its insurance-linked securities vehicle, AdVantage Retro I Ltd., its underwriting results have improved.”

Because of this move, “AM Best expects full year combined ratios for 2023 to benefit from these changes and track closer to breakeven,” which the rating agency said is expected to lead to “the group’s first full year of operating profitability.”

As well as the reduction to catastrophe-linked volatility in its results, AM Best also notes that Vantage can earn management and performance related fee income through the third-party capital strategy at AdVantage.

“This strategy is expected to provide Vantage Group with accretive income while continuing to reduce volatility in its operating results in future years,” AM Best said.

The rating agency also noted that, as Vantage scales up its primary insurance business the relative size of reinsurance has reduced, so has less of an impact to the bottom line.

Again, AdVantage has been a key lever here for Vantage, allowing the company to maintain its participation in profitable catastrophe reinsurance markets, while minimising the volatility of losses to its own profits.

“AM Best anticipates that Vantage Group’s operating performance will continue to improve as its business plan is executed,” the rating agency concluded.

Also read: Vantage to expand third-party capital use, over $1.5bn to deploy in 2024: McKeown.