AlphaCat Managers Ltd., the ILS and third-party capital focused unit of insurance and reinsurance group Validus, increased its premiums written in the first-quarter as it put its increased capital to work having raised new funds for the start of 2015.
AlphaCat reached $1.88 billion of capital under management at the 31st December 2014 (including sidecars in run-off). Of this, $347m was Validus’ own capital contribution to the various ILS vehicles and $1.534 billion third-party assets under management raised from institutional investors.
Additional capital has been both raised and also returned during the first quarter of 2015, according to Validus’ results which were announced yesterday.
AlphaCat’s assets under management remained relatively stable in overall terms, actually coming in at $1.88 billion again rounded up. However there has been additional inflows from third-party investors in the first-quarter, as well as distributions back to existing investors.
In Q1 $119.3m of total capital was raised, of which $91m was from third-party investors. In the quarter $169.6m was returned to investors, $145.4m of which was returned to third-party investors.
With the larger capital pool AlphaCat has at its disposal since the start of 2015, the unit has underwritten additional premiums during the quarter. Gross premiums written are reported as $102.6m for Q1, up from $84.2 a year earlier.
Of these $101.8m are attributable to property catastrophe excess of loss contracts, written by the various AlphaCat vehicles, while the remainder is doe to business written by PacRe Ltd., the joint venture hedge fund style reinsurer.
Management fees from third-party capital declined year on year, with $4.5m earned in Q1 2015 compared to $5.8m in 2014. Income contributed by the AlphaCat sidecars and ILS funds declined in the quarter, coming in at $5.1m compared to $6.7m for Q1 2014.
An increase in expenses actually resulted in the AlphaCat unit seeing an operating loss, with $7m of expenses reported compared to $3m for the prior year period. The increase in expenses was primarily due to placement fees from the first quarter, according to Validus’ results, which might mean this evens out over the year if more placements have occurred in Q1 than did last year.
Validus’ share of net operating income from AlphaCat declined as a result of the lower results, with a decrease of $6.9m to $2.7m for Q1. The share of net income also declined to $6.6m, down from $15.7m in Q1 2014.
During the quarter the size of AlphaCat’s sidecar vehicles shrunk a little, as older versions matured and returned capital. The sidecars went from $289m of third-party capital at 1st January to $149m at 1st April.
At the same time the AlphaCat ILS funds raised their third-party assets from $786m at 1st January to $881m at the 1st April.
Also of note Validus doubled its related party investment in the BetaCat ILS fund, which seeks to track the market by investing in as many cat bond positions as possible across the market. The related party investment was $22m on 1st January but rose to $44m at 1st April.
The quarterly results for AlphaCat have been hit by the expenses and lower reserve releases than a year ago which makes the quarter look less attractive on its own. However the increased capital base for 2015 and greater premiums underwritten should help to boost results in future quarters for the unit, so it will be interesting to see how that factors in through the rest of the year ahead.
The PacRe hedge fund reinsurer joint venture with Paulson & Co. saw a better quarter in terms of investment returns. Validus reported $39.0m in unrealised investment gains relating to PaCRe, with $35.1m attributable to non-controlling interests and resulting in a net impact to Validus of $3.9 million. This is vastly improved to recent quarters which saw PaCRe losing money due to investment losses.