Everest Re increased the size of its collateralized reinsurance sidecar Mt. Logan Re Ltd. during January 2016 to $860 million, while also reducing its own contribution to the vehicle to $50 million, Artemis understands, suggesting a greater capital contribution from third-party investors.
During the January renewals season Everest Re reported that its Mt. Logan Re sidecar, which the firm utilises to leverage efficient capital markets capacity, increased by 25% from 1/1 2015, to $860 million.
In the past, the collateralised reinsurance vehicle has been capitalised with an 85% – 15% split, with the larger contribution coming from third-party investors. However, Artemis understands that Everest Re’s latest contribution amounts to just $50 million of the $860 million total, or 5.8%, suggesting that third-party investors now contribute a significant 94.2% of the Mt. Logan Re sidecar’s overall capacity base.
At the end of the fourth quarter of last year Everest Re reported that Mt. Logan Re’s contribution from third-party capital was roughly $757 million, up slightly from Q3 but lower than the mid-year figure of $760 million.
At the time Artemis commented that the vehicle was likely around the $900 million mark in overall size, owing to Everest Re previously maintaining an 85% third-party capital to 15% own capital split.
Now the firm has reported that during January the size of the vehicle grew to an impressive $860 million, and with only $50 million coming from Everest Re itself, so a reduction in its capital contribution, with the remaining $810 million sourced from its third-party investors.
With the above in mind, this means third-party investors increased their share of the collateralised reinsurance sidecar by roughly $53 million, or approximately 7%.
The firm’s Chief Underwriting Officer (CUO) John Doucette, highlighted, “once again, 100% of Logan’s capacity was fully deployed at 1/1 renewal.”
“We continue to utilize Mt. Logan, cat bonds and traditional hedges which have allowed us to grow our gross portfolio over the last few years. While generally keeping our net PMLs on our 1/1 renewal book fairly stable, relative to our capital base,” added Doucette.
Including fees, Everest Re’s common shareholders earned $27 million from the Mt. Logan Re sidecar during 2015, and combined with the utilisation of catastrophe bonds added $2.5 billion of off balance sheet capacity the firm could deploy in the property catastrophe sector, “which has enhanced our competitive position in this very important class,” explained Doucette.
During 2015 the company reported a 6% increase in reinsurance underwriting profit to $991 million, which includes Mt. Logan Re, despite combined Logan and total reinsurance gross written premiums declining by 4% from 2014, to $4.3 billion.
On the increase in underwriting profit, Doucette said; “This is noteworthy, given a smaller amount of property catastrophe losses in 2014 and 2015, as well as some other large losses this year, including Tianjin port loss.
“These record reinsurance underwriting results, despite the soft market, highlight the successful execution of the strategy and initiatives that we put in place over the last couple of years.”
Increasing the contribution of third-party investor capital in its collateralised reinsurance sidecar highlights Everest Re’s commitment and ability to utilise capital markets capacity within its underwriting business.
Since the venture launched in 2013 it has grown at an impressive rate, now standing at $860 million, so not too far from the $1 billion mark, with the majority from third-party investors.
Everest Re will likely continue to benefit from the additional scale achieved through Mt. Logan Re, as the vehicles lower cost-of-capital assists the firm in navigating ongoing reinsurance market pressures, providing a useful additional underwriting balance-sheet.
Third-party investors are clearly comfortable with the Mt. Logan Re sidecar, evidenced by their growing contribution to the vehicle, which also reveals how Everest Re continues to see the benefits and value of utilising the wealth of sophisticated third-party investor capital, alongside its own capacity, to supplement and diversify its reinsurance business segment.
Mt. Logan Re remains the largest vehicle we have included in our listing of collateralized reinsurance sidecars.