Alleghany builds capabilities in alternative reinsurance capital & ILS

by Artemis on February 27, 2014

Alleghany Corporation, the insurance and reinsurance holding company, is building out its capabilities in alternative reinsurance capital and insurance-linked securities with the help of its subsidiary TransRe and its investment in an alternative asset manager.

Alleghany bought Transatlantic Holdings, so including the property and casualty reinsurer TransRe, in 2012. Later that year, TransRe became a become a strategic partner in specialist ILS and reinsurance linked investment manager Pillar Capital. At that time both TransRe and Alleghany Corporation made multi-year commitments to invest in Pillar’s insurance-linked funds.

Then in August 2013, Alleghany bought a stake in alternative investments asset manager Ares Management LLC, aiming to create a partnership which positioned them to serve the converging reinsurance and capital markets. Ares Management now has $80+ billion in assets under management and according to Alleghany is working on initiatives in non-traditional reinsurance capital management.

In Alleghany Corporation’s annual letter to its shareholders published with its results yesterday, President Weston M. Hicks said that the firm continues to build on its initiatives in alternative reinsurance capital and ILS alongside TransRe, its strategic partnership with Pillar Capital and its investment in Ares Management.

Hicks acknowledged the growth of the capital markets interest in global reinsurance markets, saying; “Record low interest rates have encouraged institutional investors such as pension funds to allocate a small, yet growing, portion of their investment portfolio to insurance risk vehicles that bypass the traditional reinsurance markets. The reinsurance industry itself, having had a number of years of robust capital growth, now finds itself with abundant capital resources relative to probable loss scenarios.”

Alleghany, through its various strategic interests and partnerships and now owning TransRe sees itself as well positioned to capitalise on these trends and has been actively growing its activities in the ILS and alternative reinsurance capital management space.

Hicks commented; “With regard to the emergence of non-traditional risk transfer structures, TransRe has been quietly building capabilities through its investment in Pillar Capital Holdings Limited, which manages catastrophe capital pools for institutional investors, and Pangaea, the company’s global side-car facility.”

Pangaea is an interesting one, as it is a collateralized reinsurance sidecar program which we do not hear a lot about. In fact TransRe has never officially disclosed its ownership of the Pangaea Re vehicles. TranRe is currently on its fourth Pangaea sidecar vehicle, having launched Pangaea Reinsurance I Ltd. in 2010, Pangaea Reinsurance II and III in 2011 and, most recently, Pangaea Reinsurance IV Ltd. in May 2012.

In addition to its activities in ILS fund investment, through TransRe’s partnership with Pillar Capital, and its reinsurance sidecar operations through Pangaea Re, Alleghany is actively working on new third-party reinsurance capital opportunities through its stake in asset manager Ares.

Hicks explained; “In 2013 Alleghany made a strategic investment in Ares Management LLC, an $80+ billion alternative asset manager, and we are working together to find ways to provide insurers with more efficient risk management vehicles, leveraging Ares’ asset management skills and deep relationships with pension and sovereign wealth funds.”

At the time Alleghany bought its stake in Ares Management Hicks made it clear that ILS and alternative reinsurance capital were on the firms radar, saying; “In addition, we believe our two organizations will be well-positioned to serve the converging reinsurance and capital markets.”

As Artemis wrote at the time, the Alleghany partnership with Ares Management is one of the interesting ones, given the scale of the asset manager, which could result in a major play in managing reinsurance capital from institutional sources. This remains true today and Alleghany appears to have the appetite to turn on the tap from this major asset manager, which could bring significant sums of capital into reinsurance, once reinsurance market conditions are conducive to do so. Alleghany Corporation, Ares Management & TransRe’s activities in the ILS space are worth keeping an eye on.

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