Mt. Logan Re sidecar “one of the fastest growing convergence vehicles”

by Artemis on April 30, 2015

Re/insurance firm Everest Re added a further inflow of investor capital into its Mt. Logan Re colllateralized reinsurance sidecar at the April renewals, leading the firms CUO to call the sidecar “one of the fastest growing convergence vehicles.”

Everest Re raised an additional $60m from third-party investors at the 4/1 renewal, which Chief Underwriting Officer John Doucette said, during the reinsurers earnings call this week, takes “third-party capital and Everest funds in Mt. Logan to about $750m.”

This is a little smaller than estimates back in January which suggested that Mt. Logan Re had passed $800m in total size, across third-party investor contributions and Everest’s contribution, but whatever the total figure Logan is a consistently growing pool of efficient underwriting capital for the reinsurer.

“Mt. Logan continues to attract strong investor appetite, with $60m of new inflows from external investors at 4/1, bringing third-party capital and Everest funds in Logan to about $750m,” Doucette explained.

Doucette explained that Mt. Logan Re is a platform that allows the reinsurance firm to use additional capital structures and a third-party balance sheet, allowing Everest Re to “match risk with the most efficient form of capital while generating fee income.”

“Logan is one of the fastest growing convergence vehicles,” Doucette continued, adding that the successful and continued growth thanks to new investor inflows demonstrates the reinsurers “ability to access and deploy third-party capital” while also helping to “improve Everest’s internal returns.”

Mt. Logan Re had another impressive quarter, as we wrote earlier this week, doubling the premiums written in the vehicle compared to the prior year period.

CFO of Everest Re Craig Howie explained how the performance flows through to the reinsurer and the investors in the sidecar, saying; “The Mt. Logan Re segment reported a $21m underwriting gain compared to a $10m underwriting gain in the first quarter of 2014. Everest retained $5m of income and $16m was attributable to the non-controlling interests of this entity in 2015.”

When asked whether further growth of capital under management in the Mt. Logan Re sidecar was targeted, Doucette explained; “We have investors that have been looking at it for a long time. For a lot of them it’s a slow process, in terms of getting comfortable with the underwriting, the team, the analytics, the portfolio, the construction, the value proposition that we put forth.

“But ultimately we feel bullish that it will continue, as we feel we have built a meaningful and significant and differentiating proposition for third-party capital. So yes, we expect to continue to have increased appetite into Mt. Logan.”

The reinsurance sidecar continues to be a core strategic component of the Everest Re offering to its cedents, offering the reinsurer a way to maintain a foothold in some parts of the market that are more competitive and suited to lower-cost capital.

At the same time the sidecar allows Everest Re to upsize on certain lines, bringing its own balance-sheet to bear alongside the third-party capital provided by investors in Mt. Logan Re.

Doucette commented on the way Everest Re views the sidecar, saying; “Mt. Logan is a core strategic part of Everest capital management and property catastrophe management and we will have this for many years to come.”

But despite the sidecar’s rapid growth and importance to the firm, it is just part of the overall way that Everest Re is using capital structures to manage its catastrophe appetite and exposure, while sharing risks with third-parties.

“We balance across cat bonds, traditional reinsurance protection, traditional retrocessional protection, ILW’s and Mt. Logan, and the combination of this suite of hedges and cat management structures get’s Everest to what we’re comfortable with in terms of a net catastrophe PML position,” Doucette explained.

Everest Re has been aggressive in the current market environment, in terms of growth of premiums written compared to many others, but its use of third-party capital, on both sides, has been a key reason for its ability to upsize on risk while remaining balanced.

As a result the firm looks very good in the low catastrophe loss environment which should help to stimulate continued inflows into the Mt. Logan Re sidecar.

Also read:

Mt. Logan Re reinsurance sidecar doubles premiums written.

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