Third Point Re’s U.S. reinsurance operations rated by A.M. Best

Bermuda-based hedge fund strategy reinsurer Third Point Re is getting closer to being able to start its awaited U.S. reinsurance operations, as the companies it has set up to begin writing U.S. business are now rated by A.M. Best.

Third Point Reinsurance Ltd., backed by hedge fund manager Dan Loeb’s Third Point LLC, has been working on an infrastructure to enable it to underwrite reinsurance business in the U.S. for some time.

In September we first wrote that the firm was considering seeking a license to operate in the largest reinsurance market in the world, the U.S. At the time CEO John Berger said; “As an offshore company, we’re really restricted on what our people can do in the United States. There’s no substitute for having people on the ground talking to people.”

Berger said that Third Point Re was considering two possibilities, capitalising a U.S. company or setting up a Bermuda entity which can pay U.S. tax, both would allow Third Point Re to set up a U.S. office and its staff to travel more freely there without tax worries.

The goal is to target incremental reinsurance business that could not be accessed as a Bermuda domiciled company without a U.S. arm, as Third Point Re seeks continued growth.

“Third Point Re intends to form a new reinsurance subsidiary with an office in the United States in order to originate incremental reinsurance business, better serve its U.S. insurance company clients and further cultivate reinsurance broker relationships,” the reinsurer announced in December as it hired to experienced reinsurance executives to lead its U.S. operations.

Now, A.M. Best has announced that it assigned a financial strength rating of A- (Excellent) and an issuer credit rating (ICR) of “a-” to Third Point Reinsurance (USA) Ltd. (TPRUSA) (Bermuda) and an ICR of “bbb-” to its parent, Third Point Re (USA) Holdings, Inc. (Wilmington, DE), both with stable outlooks.

These two companies have been established by Third Point Re to enable its entry into the U.S. reinsurance underwriting market. The timing should give the firm a number of months to build its relationships with brokers before the key mid-year renewal season when it will likely be targeting to deploy capacity.

The ratings are based on TPRUSA’s “strong risk-adjusted capitalization” and “experienced management team and broad-based business plan” as well as the support it receives from its parent TPRE, A.M. Best explains. Partially offsetting these positive factors are the hedged investment strategy which A.M. Best says creates an “elevated risk profile.”

However, A.M. Best acknowledges that the skilled underwriting team at Third Point Re, as well as the skilled investment team at hedge fund Third Point, may mitigate these risks.

A.M. Best also notes that the management team will face high levels of competition, both from established traditional competitors as well as from new start-ups and alternative reinsurance capital players.

With an A.M. Best rating secured Third Point Re could be very close to officially launching its U.S. underwriting operations. The reinsurer might find that access to U.S. domestic reinsurance business helps to propel its growth forwards, with its experienced underwriting hires likely bringing access to business with them.

The total-return, hedge fund backed strategy could give Third Point Re an additional edge, in terms of cost of capital, enabling it to be very competitive with incumbents.

One things for certain, for the more traditional reinsurance carriers already operating in the U.S., Third Point Re USA will be an unwelcome competitor at a time when competition is already high.