Platinum Underwriters Holdings, the Bermuda based provider of global property, casualty and finite risk reinsurance coverage, is not currently planning to manage third-party capital preferring to focus on providing adequate returns to its equity investors, according to the firms CEO.
Platinum Underwriters is the first of the big insurance and reinsurance firms to report and comment on its third-quarter 2013 results and as ever the subject of third-party capital and whether Platinum intends to join the trend for establishing capital markets units to manage external capital within its business.
At the moment the answer is no, according to President and CEO Michael Price. Platinum, at the moment, prefers to focus on providing an adequate return to its shareholders than looking to manage external money in vehicles like sidecars.
Price explained during Platinum’s third-quarter earnings call; “We’re unlikely to go out and form a sidecar simply for the purpose of managing catastrophe risk on behalf of other parties.”
Price was keen not to shut the door on the prospect though, adding; “We will and have entertained conversations with people and we’re open-minded about working together with other parties. But this is not a central or core part of our business plan.”
Clearly at the moment Platinum Underwriters wants to stick to its business plan and focus on providing value to its shareholders, rather than get involved in the increasingly busy space of managing third-party capital. Price said; “We have a set of public company investors and we’re doing our best to focus all our time and attention on giving them adequate returns.”
Despite its (current) reluctance to get into the third-party capital management space, Platinum is a user of alternative sources of reinsurance capacity for its own retrocessional reinsurance needs. In July Platinum tapped non-traditional reinsurance capacity for a $50m aggregate catastrophe retrocession protection which covers it for U.S. all natural perils, Caribbean hurricane and earthquakes in Canada.
Michael Price commented during the earnings call; “We’re always looking at opportunities to buy reinsurance and we’re agnostic as to who the supplier of that capacity is but we’re focused on the mechanism that delivers it. So if it’s a rated carrier and we’re confident that they can pay, that’s fine. If it’s a company that doesn’t have a long track record, or the kind of mechanism that we’re looking for, we’ll entertain purchases on a collateralized basis, we’ve done that. It can be reinsurance or it can be a swap format, it’s fine.”
Price said that Platinum Underwriters is always interested in finding wholesale capacity at the right price and is agnostic as to the source as long as the mechanism and rating, or security through collateralization, is right for the firm.
Price continued; “We’re open-minded and we’ll take advantage of market opportunities when we see them as being attractive to us.”
On rates, Platinum expects further downward pressure on property catastrophe reinsurance at the January renewals, unless there is a major loss to change the market. On other lines such as casualty, Platinum Underwriters sees increasing competition and with the economic environment as it is does not expect the total return of casualty business to increase. Despite this the firm expects to write a similar book for 2014 as it has in 2013, which would suggest it may need to be more active in capital management in order to make the same profit in 2014.
So begins the third-quarter reinsurer earnings season. We expect many more discussions of third-party capital, alternative reinsurance structures and the growing volume of capital markets capacity being put to work in reinsurance underwriting, over the weeks to come. With the reinsurance industry focused on January renewals, with key meetings such as Baden Baden starting next week, the discussions of rate trajectory and capacity sources will continue.
Read our article discussing some of the Platinum Underwriters CEO’s comments in July: In non-traditional reinsurance, pension fund capital may be stickiest.
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