Everest Re grows Mt. Logan Re sidecar again to approx $480m

by Artemis on October 23, 2014

Bermuda headquartered reinsurance company Everest Re has continued to demonstrate that its third-party capital backed, fully-collateralized reinsurance sidecar Mt. Logan Re is core to its business, growing the sidecar again in the last quarter to around $480m.

Everest Re has again increased its reinsurance premiums written in the last quarter, with its results beating analysts expectations. The latest quarterly report shows worldwide reinsurance premiums, which includes the firms Mt. Logan Re sidecar business, are up by a huge 19.5% to $1.3 billion, with growth opportunities in U.S. property and specialty lines business as well as strategic opportunities in Latin America cited.

That is impressive growth in the current softening reinsurance market environment and Mt. Logan Re has again played its role with just over $50m of gross premiums written at the sidecar, resulting in a quarterly underwriting gain of over $28m at a very low combined ratio of just 26.4%.

This is the strongest quarter of results that Mt. Logan Re has reported, showing that as the third-party capital sidecar vehicle reaches scale the benefits to Everest Re’s overall business grow with it.

Mt. Logan Re allows Everest Re to sign larger lines, target business where the use of third-party capital is more efficient, provide fully-collateralized protection to cedents and effectively sign twice onto some reinsurance contracts, both with its balance sheet and the sidecars funds. This strategy is clearly being put to work in search of growth.

In the third-quarter results Everest Re reports that the non-controlling interest (so the capital contributed by third-party investors) in the Mt. Logan Re sidecar has increased once again in the third-quarter, now amounting to $404.411m at the 30th September.

Everest Re is believed to have approximately $75m of its own capital in Mt. Logan Re, which would bring sidecars total collateralized capacity to around the $480m mark. That’s also very close to Everest Re’s own stated goal of maintaining roughly an 85% third-party capital, 15% its own skin in the game, mix for the reinsurance sidecar to demonstrate to investors that it is ready to back the underwritten business Logan writes as well.

Mt. Logan Re has grown steadily since Everest Re launched the sidecar and that growth has continued through 2014. At the end of last year the sidecar stood at $370m in capacity, $314.5m of which was from third-party investors. Then by April of this year Mt. Logan Re was reported to be in excess of $400 million in assets managed and fully deployed. By the middle of the year, at the 30th June 2014, the non-controlling interest (so the capital contributed by third-party investors) in the Mt. Logan Re sidecar had jumped again to $375.908m, which put the sidecar around the $450m mark.

So in the third-quarter it looks like Mt. Logan Re grew again by approximately $30m, to the $404m of third-party capital plus Everest Re’s contribution, additional money which will have been put to work in underwriting some of the $50m of premiums written this quarter.

Year to date, Mt. Logan Re has underwritten gross premiums totaling $109.2m, resulting in an underwriting gain of just over $47m at a combined ratio of 42.2%. Profitable business it would seem.

With Everest Re greatly increasing the total reinsurance premiums underwritten at the firm, soundly beating analysts estimates at Q3 and also growing its sidecars business and capital, Q3 looks like a strong quarter for the firm.

The only negative we’ve seen from analysts is the firms core loss ratio being higher than expected, which may be a result of the rapid growth of premiums coming in resulting in a hit from some loss events which before may have been muted. This is a point to watch as we go through the next few quarters, as growing premiums written so strongly in the current market could be a sign of being a little less selective perhaps.

Keefe, Bruyette & Woods analysts said; “We believe that the y/y core combined ratio deterioration mostly reflects the fading “subsidy” that formerly robust property catastrophe reinsurance rates used to provide, which implies that the trend toward continued modest core combined ratio deterioration will continue.”

Everest Re has adopted a very different strategy to many other reinsurance firms, choosing to go for growth in the softening market as a way to boost returns. The Mt. Logan Re sidecar is clearly assisting in this goal of growing premiums written at the reinsurer. Time will tell, over the coming quarters results, whether the returns achieved with this aggressive, growth focused strategy will be commensurate with the risks Everest Re is underwriting.

Mt. Logan Re remains the largest reinsurance sidecar in the marketplace and the largest we have in our listing of collateralized reinsurance sidecars.

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