By David Bull

June 2 - (The Insurer) - Long-tail alternative capital transactions in the MGA and programs space are best suited to portfolios that have scale and diversity and can demonstrate their track record with data, said Starwind Specialty chief underwriting officer Kirk Conrad.

Speaking during a fireside chat at the Program Manager Conference 2025 in New York last week alongside MultiStrat CEO Bob Forness, Conrad was asked about what investors need to get comfortable with tail risk on casualty deals in the sector.

“These types of transactions lend themselves to having size and scale and diversity, and being able to show a long history of data … to give people comfort (about) the range of outcomes … I think it’s more challenged when things are less diverse and of smaller size,” he said.

In October 2024, Starwind Specialty launched its landmark collateralised sidecar vehicle Fractal Re after raising $270 million from investors including Nationwide, Enstar and others to write a quota share across 35-plus programs on its underwriting platform with a casualty focus.

The multiyear structure is fronted by Markel’s State National and includes a commutation in year seven with Enstar aimed at providing finality to investors.

Conrad, who had been working on Fractal Re at his former employer BMS Re before stepping into his current role, last week noted the investor exit option in the transaction.

He and Forness acknowledged that while there is a lot of talk about bringing in similar options to transaction structures, there has so far been limited activity.

Forness suggested there will be a lot of evolution of the product, including the type of counterparty that could come in to take away the tail risk in transactions.

“Will it be the legacy markets that provide significant capacity there? Will it be other risk takers on the same programs willing to take the risk of the collateralised markets? Will it be a fronting reinsurer that’s able to absorb some of that tail risk? Will we build mechanisms like reinsurance to close into these vehicles?” he asked.

Forness – who at MultiStrat has been at the forefront of ILS-style casualty transactions – said the execution of tail solutions could be challenging because of the economics involved.

“The amount of available margin to pay for that is limited. And so how fast will the product develop and how fast will it become efficient? What’s the right price for it and can the economics of the overall transaction bear it will all be interesting questions we’ve got to wrestle with,” he continued.

Both executives were bullish about the growth opportunity for alternative capital in the casualty segment of the MGA and programs space.

Conrad said the market is still working through what the “mousetrap” looks like to capture the growing interest from investors in casualty risk.

“As we define that mousetrap and make sure it works for all the different stakeholders that are involved, I think that will greatly accelerate how much is there and available to continue to support the growth within the space,” he said.

Forness added: “When you look at the investors, we’re probably watching the emergence of what was a special situation (fund’s) highly unusual alternative investment to what eventually will emerge as an alternative asset class.

“And the asset class will be more accepted by more investors. (Then) more investors will have funds that are structured in order to provide the long-term capital support required for collateralised reinsurance. So I see it as structural.”