Alleghany investment income from ILS manager Pillar Capital up

Insurance, reinsurance and financial services group Alleghany Corporation continues to see year-on-year increases in the investment income from ILS manager Pillar Capital, as the profit contribution it receives from the insurance linked asset manager grows.

The profit and investment income shared by insurance and reinsurance linked securities manager Pillar Capital to Alleghany has been on the rise, as the ILS manager continues to scale and achieve positive results.

In the third-quarter of 2015 Alleghany has reported $7.3 million of investment income from its investments in Pillar Capital. That’s up year-on-year from $5 million in Q3 2014.

For the first nine months of 2015, Alleghany reports investment income from Pillar Capital of $14.9 million, up from $12.5 million in the first nine of 2014, a reasonable increase despite the lower returns across much of the reinsurance and ILS product spectrum.

Alleghany acquired a share in Pillar Capital when it purchased Transatlantic Holdings, including the property and casualty reinsurance firm TransRe, in 2012. TransRe had become a strategic partner in Bermuda-based specialist ILS and reinsurance linked investment manager Pillar Capital that year.

TransRe, which also has an ownership stake in Pillar Capital, invested $175m and Alleghany $25m in some of Pillar Capital’s limited partnership ILS and reinsurance-linked funds. Alleghany bundles the value of these investments in Pillar and its ILS funds as a single figure, with the value of its investments in Pillar reported as $230.4 million at the 30th September 2015.

Now, that’s actually a decline in the value of the investments, and it’s difficult to interpret why.

It perhaps reflects the deployment of Pillar Capital into reinsurance business with lower rates achievable at recent renewals. Or simply a decrease after some type of accounting change. Or even a disbursement of capital has occurred, Alleghany notes that the figure is net of returns of capital from Pillar.

It’s difficult to interpret accurately with the limited data in the Alleghany report, so we’d urge you not to read too much into it. Alleghany had reported the value of the investments in Pillar as reaching $243.3m at the 30th June 2015, prior to which they had steadily grown.

It’s encouraging to see the investment income profit contribution continue to rise, as it reflects continued positive results from Pillar Capital’s ILS funds, despite the lower rate environment. Part of this will be due to the increasing scale as the ILS manager adds more investor capital, so the increasing contribution may continue.

At the last count, we had Pillar Capital listed as having just over $351m of assets under management at the end of April, a figure which has likely grown since.