Bermuda based reinsurance firm PartnerRe Ltd. has returned a larger amount of capital to investors in its fully-collateralized reinsurance sidecar vehicle Lorenz Re. PartnerRe’s Q3 report shows that almost $10m has been returned to investors this year.
For the third-quarter PartnerRe reports that it returned net income of $4.92m to non-controlling interest investors. These are understood to be the third-party investors that have capital in the reinsurers Lorenz Re reinsurance sidecar, that it established in April 2013.
Lorenz Re was launched by PartnerRe as a way for it to test the third-party reinsurance capital waters with a renewing sidecar facility, structured on a multi-year basis. Lorenz Re was launched with $75m of capital, approximately $50m of the sidecar is from third-party investors while the rest was contributed by PartnerRe itself, which said that it wanted to maintain around a one-third share.
The third-quarter financial supplement published by PartnerRe shows that the income paid to non-controlling interests (third-party investors) by the reinsurer reached a new high in Q3 2014, with $4.92m paid. For the year-to-date that figure has approached $10m, at $9.914m, which is up on the figure for 2013 which was $9.434m.
PartnerRe took the sensible decision of ceding an existing book of property catastrophe reinsurance business into Lorenz Re at its launch, which has enabled it to generate earned premiums from the off. This has become evident in some consistent returns of income to non-controlling interests from the vehicle.
In terms of how much third-party capital sits in Lorenz Re, the financial report shows that total non-controlling interests amount to $52.276m at the end of Q3 2014. That’s not the highest figure seen, at the end of Q1 2014 it sat at $59.671m of non-controlling interests, but it looks consistent after a number of returns of capital income to investors and suggests that overall the Lorenz Re sidecar’s size remains around the $75m mark.
The Lorenz Re sidecar is a special purpose insurance vehicle and has been structured as a multi-year vehicle, which means that the renewal is due to April 2015. At that point in time PartnerRe will have the opportunity to allow more capital into Lorenz Re, if it chooses to and can raise it, which would allow it to grow the amount of business it cedes to Lorenz or to allow Lorenz to underwrite for itself.
It seems more likely that PartnerRe will use Lorenz Re as the ‘companion’ it said it was launching in early 2013. By allowing third-party capital to increasingly participate in its business, PartnerRe can benefit from increased reinsurance capacity, a fully-collateralized option for clients and a source of underwriting capacity which could be lower-cost overall.
Costas Miranthis, CEO of PartnerRe, said that investors in Lorenz Re so far appear to be happy based on the information they receive on their investments in the sidecar and that “We will see what happens in April,” when asked about Lorenz Re recently.
PartnerRe does have a history of investing in catastrophe bonds and insurance-linked securities (ILS) itself and doing some one-off deals which included some third-party capital, but Lorenz Re is its first efforts which look like becoming a more permanent vehicle for managing third-party reinsurance capital and sharing some of its business with investors. It will be interesting to see whether it chooses to grow Lorenz Re next year.
For more on collateralized reinsurance sidecars and third-party reinsurance investments vehicles view our list of reinsurance sidecars.