Everest Re grows Mt. Logan Re sidecar to $400m at April renewal

by Artemis on April 29, 2014

Bermuda based reinsurance firm Everest Re raised additional capital for its Mt. Logan Re fully-collateralized reinsurance sidecar, taking it to over $400m in capacity at the April reinsurance renewals.

At the start of this year Everest Re lifted its Mt. Logan Re sidecar to $370m of capacity, with $314.5m sourced from third-party investors, a significant jump from the $250m by the end of 2013 target it had set itself.

Everest Re has subsequently seen more opportunities to raise and deploy capital through the Mt. Logan Re reinsurance sidecar at the April renewals, taking the total assets under management to over $400m, according to chief underwriting officer John Doucette.

Doucette commented during Everest Re’s latest earnings call; “We are pleased to report that with additional capital raised at 4/1, Logan is now in excess of $400 million in AuM, and again 100% of the Logan capacity is fully deployed.”

Everest Re is one of the reinsurers which has taken to leveraging the capital markets both for its own retrocession and by managing third-party reinsurance capital, enabling it to write larger lines of business while reducing its own cost-of-capital. Everest Re sees Mt. Logan Re as a core part of its business mix and by continuing to grow it at a time when rates have been declining is clearly finding opportunities which appeal to its investors.

Doucette explained; “This success continues to highlight the significant value proposition we bring to our capital market investor partners in Logan, while being completely seamless to our clients who continue to deal with the same core reinsurance trading partner, Everest, as they have for many years.”

Doucette said that the sidecar is helping Everest Re to secure business as well; “This smooth, flexible deployment of capacity to our clients has helped us secure better signings on many non-cat exposed classes, as more of our clients look to have broader and deeper relationships with pure high-quality reinsurers.”

In terms of leveraging the capital markets for retrocession, Everest Re has just completed its first catastrophe bond transaction, the $450m Kilimanjaro Re Ltd. (Series 2014-1). Everest Re sees this as a necessary part of a change to its capital structure, as it takes advantage of new forms of capital available to the reinsurance market.

Everest Re sees the addition of catastrophe bonds and Mt. Logan Re to its strategy as tools for growth, enabling it to operate with different sources of capital in different parts of the reinsurance market, while also accessing risk transfer for its own book at cost-effective rates.

“The combination of Logan, cat bonds and other reinsurance and retrocessional protections, from both traditional and alternative markets, allows us to match our portfolio of risks to the best capital structure. This in turn allows us to broaden our product offerings and our value proposition both to our clients and to our shareholders,” explained Doucette.

Yet again it comes down to cost-of-capital to some degree, said Doucette; “With this flexibility in how and where we deploy our underwriting capacity, combined with flexibility in the form of our capital structure to manage those same risks, we believe we can and will continue to improve our risk adjusted returns and improve our cost of capital.”

The Mt. Logan Re sidecar allows Everest Re to deploy larger lines on reinsurance programs where the pricing is particularly attractive, better support key clients with more capacity, reduce its overall cost of underwriting capital all while managing and containing its probable maximum loss metrics.

In this way it is no surprise that Everest Re continues to grow the sidecar, it is clearly working for the reinsurer as part of its strategy. With Mt. Logan Re reportedly fully-deployed, there may be additional opportunities for Everest to raise more funds before the mid-year reinsurance renewals.

Mt. Logan Re is currently among the largest reinsurance sidecars in the marketplace. In fact it’s the largest we have listed here.

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