Everest Re, the global insurance and reinsurance firm, managed to add some assets under management to its Mt. Logan Re Ltd. collateralised reinsurance sidecar-like vehicle during the second-quarter of 2020, executives explained yesterday.
Mt. Logan Re had sat at around $818 million in terms of assets under management (AuM) at January 1st and this shrank slightly through the first-half.
But positively, the Mt. Logan Re team added some new third-party commitments in the last quarter of record and Mt. Logan Re still ended the first-half at just above $800 million in assets.
Speaking during the Everest Re second-quarter earnings call yesterday, CFO Craig Howie responded to an analysts question saying, “As far as the Logan AUM question, our Logan AUM was, we were able to grow the AUM slightly this quarter, but it is down from year-end. We’re at about $800 million.”
It bodes well for the insurance-linked securities (ILS) space in general that inflows have continued, albeit at much lower levels than in previous years.
It reflects investor confidence recovering after the years of major catastrophe losses, as well as capital markets volatility beginning to subside after the Covid-19 pandemic disrupted markets around the world.
John Doucette, CEO of the Reinsurance Division at Everest Re also commented on market dynamics, “We maintained hedging capacity through Mt. Logan and our catastrophe bonds. Across our peak cat exposures, our net PMLs increased mid-year relative to January’s net PMLs, reflecting our plan to capture this market’s improved profitability.
“The net PML increases are predominantly further in the tail of the distribution.”
That shows Everest Re taking the opportunity to expand in the firming reinsurance market environment, something the company is expected to continue over the next renewal cycle at the end of the year.
Doucette also commented on recent renewal dynamics, saying that, “Competition from ILS capacity was less pronounced during the midy-ear renewals, due to investor frustration from multiple bad industry cat loss years, adverse development and trapped capital at several ILS managers.”
He also noted that, “The retro market is favorable for sellers and as a net seller of retro, we captured strong double-digit rate increases and demand from recurring retro buyers remains robust.”
Juan Andrade, Everest Re CEO, also commented on the opportunity for Everest Re, saying, “Our philosophy continues to be to deploy capital into this market, particularly given the favorable conditions that we’re seeing right now.”
He explained that the Kilimanjaro Re catastrophe bonds and collateralised capacity in Mt. Logan Re are an important piece of this, adding that he feels good about the re/insurers capital position.
Doucette concurred, “We have the capital across the Kilimanjaro bonds, Logan and of course, our common equity and debt. We have the capital and flexibility to write the book that we see that’s in front of us and what the market gives to us. We do expect to see robust demand at 1/1 and going forward.”
Everest Re continues to use its multiple sources of capital to write to the opportunity available in the marketplace and with that opportunity as good as it has been in over a decade right now, we should expect the company to upsize on capital to support its growth ambitions.
That could include new Kilimanjaro Re catastrophe bonds later this year, as well as new third-party investor inflows into Mt. Logan Re.
These capital market backed components of the capital stack at Everest Re are a lever that provides great optionality in the current phase of the reinsurance market cycle.
It’s encouraging to see Everest Re raise even a small amount of additional AuM for Mt. Logan Re. They weren’t the only one to do so in Q2, as RenaissanceRe also raised some fresh capital from investors for its ILS vehicles.