AlphaCat third-party capital unit continues to grow contribution at Validus

The contribution made to Bermuda domiciled insurance, reinsurance and third-party reinsurance capital management group Validus Holdings, by its AlphaCat third-party capital management segment has increased dramatically over the first nine-months of 2013.

Validus has steadily built out its AlphaCat Managers unit in recent years and raised $219.4m of third-party capital as subscriptions for its AlphaCat ILS funds at the start of 2013. It also manages AlphaCat branded sidecars, raising $185m for its AlphaCat 2013 sidecar vehicle, as well as including the PaCRe Ltd. joint-venture reinsurer, which it launched in partnership with the Paulson & Co. hedge fund in 2012, in this segment of its business.

For the nine-months of the year AlphaCat has significantly increased its gross premiums written over the same period in 2012. In 2013 the segment wrote $146.8m of gross premiums, compared to just $21.6 for the same period a year earlier. For the third-quarter gross written premiums were $3.5m, up again on the $2.9 written in Q3 of 2012.

Premiums earned are up significantly as well, which signals that AlphaCat wrote a healthy and profitable book of business earlier this year. For the first nine-months of 2013 premiums earned by the AlphaCat segment were $99.8m, up from $11.8m a year earlier. For the third-quarter of 2013 premiums earned by AlphaCat were $37.2m, up from $5.5m in 2012.

Underwriting income for the segment was $58.8m for the first nine-months of 2013 and $11.9m for Q3 of 2013. This compares to $4.9m and $2.8m a year ago, a significantly higher contribution to Validus’ overall business strategy, although the income figures do include income due to non-controlling interests of third-party investors.

Validus’ Chairman and CEO Ed Noonan commented on the results announcement; “Validus’ size, scale and diversification across short tail classes of reinsurance and insurance continues to benefit our shareholders as evidenced by our strong results for the quarter. All three of Validus’ operating segments – Validus Re, Talbot and AlphaCat – performed well which led to an overall 68.6% combined ratio and $166.8 million of underwriting income. Annualized return on average equity was 19.8% and diluted book value per share inclusive of dividends increased 5.2%.”

The PaCRe Ltd. hedge fund reinsurer partnership continues to build on its contribution as well, having suffered from investment losses in the past.

PaCRe continues to face losses on its investment portfolio but it is also making investment gains as well it seems. PaCRe has suffered $32.7m of unrealised investment losses over the first nine-months of the year, however it appears to have turned things around in Q3 and Validus reports unrealised investment gains at PaCRe for the quarter of $43.3m, a much better quarterly  performance.

Validus appears to be doubling-down on building a capital agnostic reinsurance entity, with joint-ventures, third-party funded sidecars, insurance-linked securities (ILS) funds and other collateralized reinsurance operations. The results show that on a consolidated basis it is up on a year earlier and the growing contribution from its AlphaCat ILS operations and also PaCRe’s improved performance this quarter are helping as it comes to terms with increased competition.