Global insurance and reinsurance group Alterra Capital announced its fourth-quarter and full-year 2012 results yesterday and gave some insight into the contribution that its collateralized reinsurance and retrocession sidecars bring to the groups income. Alterra had two sidecars in operation in 2012, New Point IV which was formed in 2011 and the more recent New Point V which formed in mid-2012.
The results announcement only includes details of the contribution that New Point IV made to 2012 results for Alterra, we assume because the New Point vehicles underwrite a cycle from middle of the year.
Alterra announced a net loss for the fourth-quarter of 2012 of $51.8m, compared to net income of $30.9m for the same period a year earlier, due to the impact of hurricane Sandy losses on its books. For the full year of 2012 Alterra reported net income of $143.8m, compared to a net income of $65.3m for 2011.
Marty Becker, President and CEO of Alterra, commented; “Alterra’s fourth quarter operating results were impacted heavily by Hurricane Sandy. However, for the year, we are pleased to report net income of $143.8 million and growth in diluted book value per share of 7.5%, including dividends. Our 2012 results reflect the diversified underwriting strategy and risk management discipline that has served us well, particularly in years with major industry losses such as Sandy.”
Given the firm wide figures the contribution of Alterra’s New Point IV sidecar to earnings for the 2012 underwriting year is very positive. The New Point IV sidecar, in which Alterra owns a 34.8% equity share, with the remainder owned by third-party investors including hedge fund manager Stone Point Capital LLC and a number of other private investors, underwrote $75.7m of premiums in 2012, according to the quarterly report.
For the fourth-quarter of 2012, Alterra reports income of $6.9m from New Point Re IV Limited, consisting of underwriting fees and equity share earnings. This is included in Alterra’s net operating income, which it reports as a loss of $49.713m for the quarter. So for Q4 of 2012, the New Point IV sidecar was a bright point in otherwise gloomy numbers thanks to Sandy.
For the full-year of 2012, Alterra reports income of $30.3 million from New Point Re IV Limited, again consisting of fees and equity share earnings. Again, compare this to the full-year net operating income, in which it is included, of $119.103m and it’s easy to see the value and profit the sidecar operations bring to Alterra. In fact, for the full-year New Point IV contributed 25% of the net operating income, which is impressive.
It also appears from the numbers above that New Point IV was not too badly hit by hurricane Sandy, given that it contributed income of nearly a quarter of the full-year contribution.
These numbers show that Alterra’s sidecar operations are a meaningful part of its overall business and perhaps contribute a larger proportion of its income than you might think, given that sidecars are often much lower in operational friction and costs. The contribution that third-party capital makes to Alterra’s bottom line is significant and we expect the firm will look to grow this alongside the current trend of re/insurers leveraging investor capital for a variety of underwriting structures.
It was announced in December that Markel are to acquire Alterra in a deal worth approximately $3.13 billion.