Everest Re’s new CEO Andrade sees retro & third-party capital opportunities

Everest Re’s new and incoming CEO Juan C. Andrade sees a range of opportunities presented by current market conditions, among which are increased use of third-party reinsurance capital and also underwriting in the retrocession market.

Everest Re held a series of analyst meetings this week, with Andrade taking a lead role as the incoming Chief Executive Officer of the firm, as he is set to succeed Dominic Addesso as of January 2020.

Andrade pointed to current market conditions presenting a range of “rare” but attractive opportunities to Everest Re (as our sister publication Reinsurance News has reported today), which he wants the firm to capitalise on and maximise, across the three areas of insurance, reinsurance and retrocession.

Third-party capital has been a key lever for Everest Re in recent years, as the company increased its use of catastrophe bonds and the collateralised reinsurance operations at Mt. Logan Re.

Andrade sees opportunities to increase this focus it seems, as he told analysts from Goldman Sachs that the fee nature of this business is attractive and the ability to hedge property catastrophe exposures is also appealing.

Third-party capital from cat bonds and managed through Mt. Logan Re have become an increasingly important piece of Everest Re’s capital structure in recent years. With market conditions reacting to the losses of recent years, Andrade sees opportunity to expand on this.

Andrade said that as the market deals with and moves beyond the immediate impact of catastrophe losses, he expects that third-party capital investors will increasingly look for aligned partners to work with, considering Everest Re to be well-positioned in this respect.

The underwriting, risk modeling, market access and knowledge of re/insurers like Everest Re is likely to be attractive to major institutional investors, especially if they can find ways to minimise the impacts of catastrophes in terms of trapping of collateral and reduced returns.

Andrade said that Everest Re could look to develop specialised sidecar and special purpose vehicles (SPV’s) for dedicated investment partners, capitalising on the success of Mt. Logan Re, which will help it to expand and grow its and ILS capabilities over the longer-term.

Andrade is also very focused on maintaining Everest Re’s diversification and not becoming over-exposed to property catastrophe risks, somewhere that its third-party capital vehicles and use of cat bonds has assisted over recent years.

By leveraging the appetite of third-party investors and delivering on returns to them, Everest Re can both continue to write a certain level of property catastrophe risk without over-exposing its own balance-sheet to it, while earning fee income and growing its own market standing.

However, Everest Re is taking climate change seriously and says it will be accounted for as necessary in its book, while also investigating the increased frequency of losses in regions such as Japan.

Here, the re/insurers management said they are trying to determine whether the frequency of recent typhoon losses in Japan are cyclical or structural in nature.

Retrocession is seen as another specific area of opportunity right now at Everest Re.

Speaking to the analysts from Goldman Sachs, Andrade explained that the temporary reduction in insurance-linked securities (ILS) capacity and the issues presented by trapped collateral have particularly affected the retrocession market as the 2020 renewals approach.

As a result, Everest Re expects to underwrite more retrocession it seems, with Andrade seeing opportunity there.

Andrade told the analysts from KBW that, given Everest Re’s balance-sheet strength, he sees the chance to capture near-term opportunities in distressed markets such as retrocession, as recent loss activity impacts and traps more capital from the ILS market and alternative sources.

With retrocession market capacity seen to be severely limited at this time, it had always been assumed that some of the larger, traditional writers of retro may come back to the market at this time.

Everest Re would be one of those that used to write a much larger retro book than it does today.

The question will be whether pricing, albeit rising significantly year-on-year, will rise enough to satisfy the demands of the likes of Everest Re.

There’s also the question of whether others will follow suit and how greater interest from large, traditional reinsurers could affect pricing at the renewals.

Andrade said analysts from KBW that Everest Re’s balance-sheet strength can allow it to capitalise on the current opportunity in distressed markets like retro, as the impacts of recent losses impact and trap more ILS capital.