Bermuda-based insurance and reinsurance company, Everest Re, continues to benefit from a robust pipeline of insurance-linked securities (ILS) investment opportunities and is seeing a “high degree of interest” in its collateralized reinsurance sidecar-like vehicle, Mt. Logan Re Ltd., according to Chief Financial Officer (CFO), Mark Kociancic.
Everest Re’s third-party capital vehicle has become a core part of the re/insurer’s strategy, and while there’s talk of investor fatigue and caution within the ILS space on the back of consecutive heavy loss years, exacerbated by the uncertain impacts of Hurricane Ian, interest in its alternative capital platform is robust.
This is according to CFO Kociancic and Jim Williamson, Chief Operating Officer (COO) and Head of Reinsurance, who discussed the carrier’s Mt. Logan Re vehicle, as well as the broader ILS marketplace, during an earnings call following the release of its third-quarter 2022 results.
“So, there’s definitely, I think, a lot of emphasis on sophisticated investors who have been in the asset space for quite some time,” said Kociancic. “We have, I would say, a pretty good pipeline, a high degree of interest, particularly given the opportunities they have with Everest.”
He went on to highlight the fact Mt. Logan has a strong alignment with the underwriting of Everest’s catastrophe book in the reinsurance divisions.
“So, from that standpoint, you know, like I said, nice pipeline and sophisticated investors, and lots of money to deploy tactically at different layers, and we’re fortunate that we can meet those different types of appetite because of our scale,” said Kociancic.
Williamson reiterated Kociancic’s comments, describing the pipeline as “robust”, and also expanded on the alignment of interest with investors.
“Mt. Logan is structured, essentially, on a quota share basis, so the results that Everest generates for its own balance sheet are the same results that our Mt. Logan investors experience, which is, I think, a differentiator for us because it creates an incredible alignment of interests. And it means in situations where we have a large loss event, you know, the investors in Mt. Logan are getting the exact experience that we’re having on our side. So, it’ll be very consistent that way,” said Williamson.
Of course, the third-quarter of 2022 was elevated in terms of the catastrophe experience, with Hurricane Ian currently expected to drive an insurance industry loss of around the $55 billion mark, making it the second most expensive loss event ever for the industry.
For Everest, catastrophe losses amounted to $730 million in Q3 2022, of which the majority, or $600 million relates to Hurricane Ian.
Based on Williamson’s comments, it’s safe to assume that some of the loss will be shared with ILS investors in Mt. Logan Re.
Williamson stressed that, regarding losses that filter through to its ILS investors, it’s important to look at it over time.
“And I would say, on a year-to-date basis, while we have had significant cat activity this year, we’ve also collected a great deal of cat premium and that is inuring to the benefit of our Mt. Logan investors. And, so, I don’t think there’ll be any surprises in that for them,” he said.
Commenting on the ILS space more broadly, Williamson revealed that it is a more challenging environment to raise capital as people are giving it a rethink, yet this is what’s driving much of the hardening and dislocation being seen in the market.
“I think the good news is, from our perspective, we think about gross lines management really as an independent factor. And so, whether we raise X or Y amount of money in Mt. Logan, is not going to affect how we think about our gross line underwriting.
“We’re really looking to drive gross profits that translates into net profit for our balance sheet as well as good results for our Mt. Logan investors, and we’re going to continue that approach,” said Williamson.