Validus’ AlphaCat grows assets under management to $1.6 billion

Bermuda domiciled insurance, reinsurance and alternative capital management group Validus Holdings has seen reinsurance-linked assets under management at its AlphaCat third-party capital management and ILS unit increase to $1.6 billion by the end of 2013.

The total assets under management reached $1.6 billion at the end of 2013, according to Validus CEO Ed Noonan in the reinsurers latest results conference call held on the 31st January. Noonan said; “AlphaCat, our third-party asset manager, performed very well and finished the year with $1.6 billion in assets under management. AlphaCat also launched our fifth sidecar with strong support from long-term investors.”

Jeffrey Sangster, CFO at Validus, commented on the launch of the latest edition of Validus’ AlphaCat sidecar range, the firms fifth such vehicle, which launched in time for the January renewals.

Sangster said; “AlphaCat 2014 was capitalized with $160 million, of which 86.25% was from third parties. Investors in the current version of sidecar are primarily a rollover of previous sidecar investors as they continue to be attracted to the risk-reward offered in the structure. As with previous sidecars, AlphaCat 2014 will employ its capital primarily in retro and other high return opportunities.”

With AlphaCat now among the larger third-party reinsurance capital managers in the market and possibly the largest reinsurer operated unit the contribution to Validus’ net income has grown to $13.5m in the fourth-quarter.

Sangster explained the breakdown of this as; “AlphaCat’s contribution to Validus net income is comprised of the following components. Validus’ share of manager fees in the quarter for AlphaCat is $6m, while the AlphaCat sidecars and ILS funds contributed $5.5m of income from operating affiliates in the quarter, based on our equity interest in these entities. Realised and unrealised gains on the PaCRe investments retained by Validus were $2.7m. Validus share of income from consolidated AlphaCat entities is $3m. Offsetting the above four components are expenses incurred by AlphaCat managers of $3.7m, which brings the total net income contribution to $13.5m.”

Ed Noonan discussed the progress made at AlphaCat; “Turning to AlphaCat, our performance continues to be quite good. AlphaCat has established a firm position in the third-party assets market.”

However, despite the fact that AlphaCat assets under management have grown it seems that Validus could have grown it much more if opportunities for deploying capital had been more widely available.

Noonan continued; “We were not of a mind to take on much additional capital last year as we did not see good opportunities to put any extra money to work.”

Noonan then commented on the firms fifth sidecar, AlphaCat 2014; “This vehicle focuses on lower layer risk and is placed predominantly with investors who have previously been with us, which we see as good affirmation of the results that we’ve delivered for our investors.”

There may be further opportunities for AlphaCat through 2014, said Noonan, but it will depend on the market environment; “We do see further potential opportunities for AlphaCat investors in 2014, but to some extent that depends on our view of competition and catastrophe rates in the run up to the next renewal period.”

Noonan explained how AlphaCat can help a reinsurer like Validus with its capital management and in answering difficult questions about whether Validus would ever be willing to shrink its capital base. He sees AlphaCat as helping Validus to be more valuable to its clients in increasing capital deployment rather than thinking about shrinking it.

Noonan said; “This is where actually the AlphaCat strategy is invaluable to us. There are any number of places where on very large programs Validus Re will put down a very big line and AlphaCat will put down a rather large line side-by-side which really makes us much more important to the client.”

More important to Validus’ AlphaCat unit will be the mid-year June/July reinsurance renewals when much of the U.S. property catastrophe and Florida business it writes will be renewed. That market juncture may prove more of a challenge to AlphaCat, but with $1.6 billion of assets under management the third-party capital unit has the scale to compete with the rest of the market.

It should be noted that some of the $1.6 billion of assets under management at AlphaCat is sourced from Validus, but third-party assets account for somewhere in excess of $1 billion, possibly as much as $1.2 billion of the total.

Read our other recent article on Validus’ results: AlphaCat’s third-party capital contribution to Validus grew in 2013.