Stone Ridge Asset Management, the alternative risk premia focused mutual fund manager, is no stranger to taking big bets on the world’s largest insurance and reinsurance firms, with its portfolio of ILS assets now amounting to $7 billion.
But the biggest two of these bets currently seems to be on the underwriting performance of Bermudian specialty re/insurance firms Everest Re and AXIS Capital, as Stone Ridge holds almost $1.5 billion of reinsurance linked assets that have been underwritten by the pair.
In fact, given the size of the stakes held by Stone Ridge in these two major reinsurers, it is likely that the asset manager is the largest third-party capital provider to both of their collateralized reinsurance ventures.
Let’s start with Everest Re. Stone Ridge currently holds $561 million of assets exposed to a variety of accounts within the reinsurers Mt. Logan Re collateralized vehicle. Given Everest Re cited the Mt. Logan Re AuM as $1.02 billion as of April this year, the Stone Ridge stake is definitely significant.
But on top of the investments in Mt. Logan Re, which expose Stone Ridge and its investors to the underwriting and risk selection of the Everest Re and Mt. Logan Re teams, the asset manager holds another almost $209 million in numerous tranches of Everest Re’s Kilimanjaro Re catastrophe bond series.
So overall, Stone Ridge held investments amount to almost $770 million in Everest Re related reinsurance assets as of April 30th 2018.
That’s a significant share of the total third-party reinsurance capital leveraged by Everest Re and a significant bet on the firms underwriting abilities and performance.
Now onto AXIS Capital. Stone Ridge currently holds almost $657 million of investments in various segregated accounts of the AXIS Ventures Re collateralized reinsurance vehicle and also has another almost $26 million invested into AXIS’ Northshore catastrophe bonds.
So that gives Stone Ridge a total exposure of almost $683 million to AXIS’ underwriting practices, which is a particularly significant chunk of the $1.9 billion of third-party capital that AXIS Capital said it utilised as of February this year.
Stone Ridge also takes big bets on other major players in insurance and reinsurance, many of which are not identifiable due to the transactions being private and in uniquely named cells of multi-use collateralized reinsurance vehicles.
But of those we can identify, it seems Stone Ridge has $263 million invested in Aspen’s underwriting through its Peregrine vehicle and $14 million in its Silverton sidecar, $227 million in Swiss Re’s underwriting through its Sector Re sidecar, almost $113 million in Munich Re’s underwriting through its Eden Re II sidecar, $52 million with Argo through Harambee Re, almost $51 million in Brit’s Sussex vehicle, and $51 million with PartnerRe through Lorenz Re.
All of this adds up to over $2.2 billion, or 31%, of Stone Ridge’s total $7 billion of ILS and reinsurance linked assets (across its two dedicated ILS mutual funds) invested across the underwriting performance of just eight of the world’s major players.
As we said, there are many more private ILS transactions we cannot identify, some of which are large and likely to represent quota shares or private deals with more of the major re/insurers.
Stone Ridge is making these big bets on what it feels are the best underwriting shops in the re/insurance market, which does provide it with the broad market spread it seeks out for its investors. But also exposes it to market-wide losses or declines in underwriting performance as well (naturally).
Given the size of the investment positions, some of these re/insurers would find their third-party capital declined significantly should Stone Ridge elect not to renew certain positions, which now gives the mutual fund manager a significant amount of power when it comes to deploying its capital and choosing which firms underwriting portfolios to back.
As we also wrote last week, Stone Ridge also takes smaller bets such as its position in a Lloyd’s corporate member vehicle.