Third Point Re improves combined ratio, cat fund turns a profit

Bermuda-based property and casualty reinsurance firm Third Point Reinsurance Ltd., backed by hedge fund manager Dan Loeb’s Third Point LLC, has improved its combined ratio in the second quarter but the hedge funds investment results declined.

The total return strategy of hedge fund backed reinsurer Third Point Re sees it underwriting lower-volatility business, a strategy which often comes with less pressure on achieving a combined ratio below 100, while the investment return of the hedge fund strategy seeks to boost the overall return of the business, providing investors with a total return through share price gains and dividends.

In the second quarter of 2014 Third Point Re improved its combined ratio by almost 3 points compared to the quarter a year earlier, coming in at 102.7%. The firm also grew its top-line premiums written significantly, with gross premiums of $145.5m reported for Q2 2014, compared to $98.2m for Q2 2013.

The investment return achieved by the hedge fund strategy employed through Dan Loeb’s Third Point LLC declined though, which lowered the total return. The investment return was 2.3% in Q2 2014, compared to 3.2% in 2013. However the six month figures show the difficult investment market in 2014, with the first half of this year seeing an investment return of 5.5% compared to 12.2% in the first half of 2013.

Overall net income is up for Third Point Re, with $31.3m reported for Q2 2014, compared to $26.2m a year earlier. Earnings per share came in at $0.29, which is slightly down on the $0.33 reported for Q2 2013.

“Our Total Return approach continued to generate growth in diluted book value per share in the second quarter,” said John Berger, Chairman, Chief Executive Officer and Chief Underwriting Officer.  “Our combined ratio dropped to 102.7% from 105.5% in the prior year’s second quarter as we continue to gain scale and Third Point LLC, our investment manager, successfully navigated market volatility through selective investments in securities and market hedges.  We have managed to maintain our underwriting margins so far in 2014, despite challenging market conditions.”

The third-party reinsurance capital investment manager unit Third Point Reinsurance Investment Management Ltd., which operates the catastrophe reinsurance focused insurance-linked investment fund named the Third Point Reinsurance Opportunities Fund Ltd., saw an improved performance in Q2.

Net income, after attributing income to non-controlling interests, from this part of the Third Point Re business was $0.2m and $0.1m for the three and six months ended June 30, 2014, respectively, compared to a net loss of $0.3m and $0.1m for the equivalent periods in 2013. 

The Third Point Reinsurance Opportunities Fund grew its net assets under management to $111.4m as of the end of the first-half, up from $104m at the end of 2013.

Third Point Re had stopped taking on new inflows of capital into the catastrophe fund, citing the difficult market conditions earlier this year. Third Point Re does not underwrite property catastrophe excess of loss reinsurance on its own rated balance-sheet, preferring to underwrite this type of risk solely through the catastrophe fund. Despite this, the fund has turned a profit which will be a pleasing result in the current reinsurance climate.

Third Point Re continues to show the benefit of an active and more aggressive investment strategy, such as hedge fund backed reinsurers follow, as the investment return (although lower in 2014) helps it to continue its growth and remain on track for its shareholders despite the difficult reinsurance market conditions.