K2 raising capital for new cat fund

K2 International, the London-based specialist MGA, is out raising capital for additional reinsurance and possibly US retrocession & ILW underwriting in 2023.

The move comes partly to replace an exiting capacity source, but the additional target to raise capital for retrocession or industry loss warranties (ILW’s) is a direct response to market conditions and an opportunity K2 says it has identified.

The capital markets team at Stonybrook is undertaking the capital raise on behalf of K2, with a range of investors being approached including K2 CAT’s existing US client-base we’re told by a K2 spokesperson.

If the capital raise is successful, K2 International will use the funding to write US Cat business, both for existing K2 CAT clients and possibly some US retrocession & ILWs as well.

K2 CAT, the firm’s flagship catastrophe reinsurance underwriting venture, already has two US cat facilities that it has renewed for 2023.

But with K2 CAT’s 9-year relationship with Hong Kong headquartered reinsurer Peak Re coming to an end this year, the underwriter is actively sourcing replacement US cat capacity and feels it is making steady progress on this; conversations with a number of potential new carriers are well advanced.

We’re told K2 hopes to raise at least $250 million for this new fund or facility, but if more capital is interested then the underwriting opportunity could be even more sizeable.

K2 CAT is focused on creating bespoke portfolios of catastrophe risk aligned to a carrier or capital provider’s risk appetite, something that should resonate with those investors or capital providers looking to take advantage of what could be the best catastrophe market conditions for as long as 30 years.

K2’s spokesperson told us that the company is confident it will be able to support its existing client base at the 1/1 renewals and going forwards, at a time when it understands they need the continuity most.

The structure of the vehicle or fund that the capital will be raised to is yet to be decided and we understand it could be more fund-like, or something more akin to a sidecar pool of capital, to augment K2 CAT’s ability to write new risk through 2023.

The retrocession appetite is entirely new though and this will be an addition to K2’s CAT strategy, as well as a new offering it makes to investors and capital providers.

Similarly, the ILW area is an attractive proposition in the current market environment and one in which K2 CAT has a previous, profitable track record, we are told.

With insurance-linked securities (ILS) investors already partnering with MGA’s and K2 a familiar name to them, it’s possible some of the capital raised comes from ILS market sources, or that the structure used to hold and deploy capital is more akin to an ILS vehicle.