Everest Re still fundraising for Mt. Logan Re sidecar

Bermuda based reinsurance firm Everest Re has yet to reach its initial fundraising target for its sidecar, Mt. Logan Re, which it launched at the start of the year. Currently the reinsurer says that it is about half way to its initial target of $250m of capital, which included $50m of its own funds.

It’s interesting, as Everest Re said when it launched the Mt. Logan Re sidecar in January; “Everest Re will provide initial funding of $50 million to Mt. Logan Re with additional funding secured from third party investors to reach an initial target capacity of $250 million.”

That statement made it appear that fundraising was complete and that Mt. Logan Re would begin underwriting immediately, but now it transpires from comments made on the reinsurers second-quarter earnings call that $250m was the target by the end of the year.

President of Everest Re Dominic Adesso said on the earnings call;”We had initially targeted by the end of the year to raise approximately $250 million in outside capital.”

With the $50m injection from its own funds Everest Re has had a bit of a headstart with its sidecar. Adesso continued; “We are about half-way there, we have some capital already deployed at Mt. Logan which would be reflected in the third quarter.”

It would be interesting to understand how near to half-way the reinsurer actually is, particularly with the $50m injection of its own capital in Mt. Logan Re. When you look back at the statement from the original launch press release for the sidecar the comments made do seem like a bit of a change of tone.

Adesso continued; “That capital has already been committed to us and will allow us to expand our writing within the reinsurance operation and then essentially quota share some business off to Mt. Logan.” Adesso admitted that Mt. Logan Re was a “slow build” for Everest Re, suggesting that it had perhaps always been targeting January 2014 for a meaningful deployment of capital.

Everest Re’s sidecar Mt. Logan Re is up and running but at this time has not yet reached its target capitalisation. With a lot of competition for raising funds in the insurance-linked securities (ILS) space, perhaps it has not been as easy as Everest Re initially thought, perhaps leading to the change of tone since the launch.

Everest Re has itself taken advantage of reinsurance market pricing conditions, particularly for non-traditional sources of reinsurance capacity in recent months.

Joseph Taranto, CEO at Everest Re, commented; “I see the current overall reinsurance/insurance marketplace as offering reasonable opportunities, and where companies that are focused, nimble and disciplined can do very well.”

Everest Re increased its premiums in Florida which in turn helped it increase its margins. The reinsurer then took advantage of the non-traditional reinsurance market to secure an industry loss warranty (ILW) cover to help it maintain its probable maximum loss at a 1-in-100 year level.

Adesso commented; “We purchased an ILW retro on the Florida book, which reduced our peak event PMLs, while at the same time, overall margins increased.”

He added; “The ILW deal wasn’t just us managing the overall portfolio.” After completing all of its renewal deals Everest Re found itself with a 1-in-100 year PML that was higher than a year earlier and so took to the ILW market to help reduce that. Adesso continued; “So we went to the ILW market, procured a deal that we’re very, very happy with and took it back down.”

This is another example of a reinsurer taking advantage of market conditions to enable itself to write more business while hedging it sensibly to maintain its own target figures on PML. We suspect that this strategy will have been followed by a number of reinsurers and may explain reports that suggest that the ILW market has seen an increase in volume around the mid-year renewals.

So Everest Re will continue to raise capital for is sidecar Mt. Logan Re and aim to deploy it for the January renewals. There will be significant competition both in terms of capital raising and capital deployment in the run up to January so it will be interesting to see how successful Everest Re are, particularly when other reinsurers and ILS specialists are offering broader investment options than just a sidecar vehicle.