Mt. Logan Re expands remit with retroactive casualty reserve deal

It appears the remit of Mt. Logan Re Ltd., the collateralized reinsurance, sidecar-like investment vehicle of Everest Re, has expanded in recent months, with the structure entering into a retroactive casualty reserve reinsurance transaction with its parent, signalling a broadening of the Mt. Logan Re underwriting appetite.

We can’t be sure whether third-party investors in Mt. Logan Re are set to benefit from the returns and performance of this retroactive casualty reinsurance transaction, or whether it is purely an internal deal for the benefit of Everest Re and its subsidiaries that happens to use the Mt. Logan Re structure.

Whichever it is, it does signal a broadening of the use of Mt. Logan Re and an expansion of its remit to include casualty reinsurance risks, as previously Mt. Logan Re had been predominantly focused on property risks, largely catastrophe in nature.

We understand that at April 1st 2018, Everest Re entered into this retroactive reinsurance transaction with one of Mt. Logan Re Ltd.’s segregated accounts.

The transaction saw Everest Re retroceding nearly $269.2 million of casualty reserves related to accident years 2002 to 2015 that had been held by its Everest Reinsurance (Bermuda), Ltd. entity to the Mt. Logan Re segregated account.

Everest Re also transferred $252 million of cash to the Mt. Logan Re segregated account, which we presume to be the current net reserve and said that the maximum liability that could be retroceded under the terms of this retroactive casualty reserves reinsurance agreement would be $319 million, with Everest Re set to retain liability above that amount.

So this appears to be an adverse development cover for a defined portfolio of casualty reinsurance reserves that had been underwritten and managed by Everest Re.

As we said, we can’t be sure of the motivations for the transaction at this time, or whether there is a third-party investor or group of investors backing the arrangement that stand to benefit from the reinsurance-linked returns and performance of this casualty book.

But it does signal the remit and scope of Mt. Logan Re expanding into the casualty reinsurance arena, with an adverse reserve development type transaction where it stands to benefit from performance of the underlying portfolio and would face losses should the performance worsen.

These types of transactions help re/insurers to control their longer-tail exposures and protect themselves against adverse development of casualty books.

Given the fact that Everest Re would have first reinsured these casualty reserve premiums and managed or seasoned them for a time, it perhaps makes sense that this could be a good way to provide third-party investors with access to casualty reinsurance exposures and returns.