Third Point Re sees cat fund income grow, but investment return drops

Bermuda-based hedge fund strategy reinsurer Third Point Re has reported mixed results, with growing income from its ILS & catastrophe fund, continued combined ratio improvement in its reinsurance business, offset by a reduction in investment return.

Property and casualty reinsurance firm Third Point Reinsurance Ltd., backed by hedge fund manager Dan Loeb’s Third Point LLC, follows a total return strategy, underwriting lower-volatility business often at higher combined ratios, 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.

Third Point Re continues to make good progress and for the third-quarter of 2014 reports another improvement to is combined ratio, reporting 101.7% compared to 107.9% last year and a nine month combined ratio for 2014 of 103.6%, compared to 107.7% in 2013.

That improvement is moving the underwriting side of its business towards profitability, which is a target for the firm as it seeks to get that combined ratio under 100. However Third Point Re reports a net loss for Q3 2014, of $6m, as a drop in investment return hit the firms results.

“While the overall result for the quarter is disappointing, I am pleased with the high volume of opportunities we are seeing and the continued improvement in our combined ratio,” said John Berger, Chairman, Chief Executive Officer and Chief Underwriting Officer. “Our combined ratio dropped to 101.7% in the quarter from 107.9% in the prior year’s third quarter as our earned premium grew and our general and administrative expense ratio continued to decline. The return on our investment portfolio managed by Third Point LLC was flat for the quarter, consistent with the performance of the broader markets.”

Third Point Re underwrote significantly more premiums than a year earlier, as it scales its business, which should over quarters to come continue to increase underwriting income. If it can then get the combined ratio down even further and when the investment return performs, its total return to investors will be very attractive.

In Q3 Third Point Re wrote $126.4m of gross premiums, compared to $45.4m a year earlier. Year-to-date premiums written are $359.5m compared to $239.7m for the comparable period in 2013.

Investment income achieved by the hedge fund strategy employed through Dan Loeb’s Third Point LLC was flat, as Berger explained, compared to investment income of $54.6m in Q3 2013. Over the first nine months the investment income is reported as $92.1m compared to $168.8m. This reflects the difficulty that some hedge fund managers have been having in recent quarters, as their investment bets have been hit by global macroeconomic factors as well as the continued low-interest rate environment.

The third-party reinsurance capital investment management unit of the reinsurer, Third Point Reinsurance Investment Management Ltd. which operates the catastrophe reinsurance focused insurance-linked fund named the Third Point Reinsurance Opportunities Fund Ltd., again increased its income contribution to the firm.

Net income, after attributing income to non-controlling interests, from this part of the Third Point Re business was $3.6m and $3.8m for the three and nine months ended September 30th, 2014, respectively, compared to a net loss of $2.7m and $2.6m for the equivalent periods in 2013.

The Third Point Reinsurance Opportunities Fund grew its net assets under management to$117.9m at the end of September, an increase from $111.4m as of the end of the first-half 2014 and up from $104m at the end of 2013.

Third Point Re has not been taking on new inflows of capital into the catastrophe fund, citing the difficult market conditions earlier this year. The firm 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 that Third Point Re only takes on new capital from investors as and when it feels market opportunities are attractive.

In this quarter the benefits of the active hedge fund investment strategy have not been apparent, but the continued progress that Third Point Re has been making in terms of increasing its premiums underwritten, growing the premiums earned as a result and lowering its combined ratio, will all put it in a good position to profit when the investment return next bounces back.

Also of note is the fact that CEO and CUO John Berger has agreed to an extended employment contract with the reinsurer for another three years.

Third Point Re also announced a number of management changes.  Rob Bredahl, currently CFO and Chief Operating Officer, will be promoted to the position of President and Chief Operating Officer. Christopher Coleman, currently Chief Accounting Officer, will succeed Bredahl as Chief Financial Officer, both effective November 10th, 2014.

In addition, Nicholas Campbell, previously Senior Vice President, Underwriting, has been promoted to the position of Chief Risk Officer effective November 5th, 2014, succeeding Michael McKnight, who resigned from the positions of Chief Actuary and Chief Risk Officer effective November 5th, 2014.

John Berger commented; “I am extremely pleased to announce the promotions of Rob, Chris, and Nick as their contributions have been critical to the growth of Third Point Re.  I look forward to their future successes as we continue to execute our strategy and develop our business.”

He continued; “I would also like to thank Mike for his tireless efforts and help in building Third Point Re from a private business into the successful public company that we are today.  Mike has been a valuable part of the Third Point team and I wish him success in his future endeavors.”