Bermuda-based reinsurer Everest Re continued to see strong interest in its collateralized reinsurance sidecar vehicle Mt. Logan Re during the first-quarter, underlining increased investor comfort and acceptance of the expanding collateralized reinsurance space, ultimately supporting ILS sector growth.
Global reinsurance firm Everest Re reported its first-quarter 2016 results recently, revealing continued benefits and strong investor interest for its Mt. Logan Re sidecar type vehicle, an active third-party reinsurance capital venture that the firm utilises to supplement and diversify its reinsurance business.
The reinsurance market remains under significant pressure from declining rates exacerbated by heightened competition, the benign loss environment and ample capacity from both traditional and alternative sources.
Many in the space have now realised the benefits of embracing the wealth of third-party reinsurance capital and continue to adopt strategies and establish vehicles that seek to enhance third-party capital capabilities.
And Everest Re is clearly one of those that is reaping the benefits of its third-party collateralized reinsurance vehicle, which, by leveraging Mt. Logan’s lower cost-of-capital the reinsurer benefits from an additional source of underwriting revenue, helping it navigate the softening reinsurance marketplace.
During the firm’s Q1 earnings call, John Doucette, President and Chief Executive Officer (CEO) of Everest’s Reinsurance division, highlighted the continued interest from existing and new investors in the vehicle.
“We have continued interest from a lot of people that have been looking at us for a long time and one of our goals is to continue to diversify the investor base and the types of investors that are in there,” said Doucette.
Dominic Addesso, Everest Re’s President and CEO also commented on the continued interest in the vehicle, but did note some slowdown compared with a year or two ago.
“Certainly I think overall demand in this space seems to have quieted a bit because of where rates are or rates are headed. We still have an increased interest in Logan, but it doesn’t mean that it’s at the same pace that it might have been a year or two ago,” said Addesso.
Doucette explained that as at April 1st, Mt. Logan Re’s assets under management (AuM) increased by 33% when compared with the same period last year.
The fully-collateralized reinsurance sidecar’s AuM remains near the $1 billion mark, with Everest Re also increasing its investment in the vehicle by an additional $10 million in Q1, taking its total investment in Mt. Logan to approximately $60 million, Artemis understands.
Meaning that a significant portion of Mt. Logan’s capacity comes from third-party investors, which, along with the growth of the collateralized reinsurance market in 2015 and so far in 2016, suggests investors are gaining comfort and confidence in this particular sub-sector of the insurance-linked securities (ILS) space.
“Logan remains one of the fastest growing capital markets convergence vehicle and continues to be a core part of Everest Re’s long term capital management and business strategy,” said Doucette.
The success of Mt. Logan Re is testament of the growing maturity and sophisitication of ILS market investors, and also supports further growth of the collateralized reinsurance space.
Ultimately, the expansion of the collateralized reinsurance space will help to broaden the reach of the overall ILS space, and as investors continue to seek more diversifying investments in new peril regions, vehicles like Mt. Logan are an important mechanism that enables participation in re/insurance-linked exposures.
Everest Re reported $3 million in earnings and fees from Mt. Logan during the first-quarter of this year, which is down from the $5 million reported in Q1 2015, which is essentially down to catastrophe losses experienced in the quarter, says Everest.
Doucette explains that 100% of Mt. Logan’s capacity was deployed at April 1st, which is also a benefit to the vehicle’s investors, “as their capital is deployed immediately rather than being uninvested earning no return, a common problem for investors in the convergence vehicles.”
The ability and willingness of Everest Re to deploy all of the capital markets-backed capacity in Mt. Logan clearly benefits investors, and is likely part of the reason investors continue to show an appetite for the vehicle, helping it grow at a steady and disciplined pace.
Investors are clearly comfortable with Mt. Logan and continue to deploy capacity in the vehicle when possible, helping Everest grow its fully-collateralized venture as and when it sees the opportunity to do so.
The collateralized reinsurance market is a rapidly expanding part of the wider ILS space, and the benefits to investors and firms of vehicles such as Mt. Logan Re suggests that further growth could be likely in the coming months.
As the reinsurance market remains soft and pressures continue to mount, re/insurers are expected to adopt strategies and establish vehicles that utilise alternative reinsurance capital to supplement underwriting income, an approach that as shown by Everest Re, can be very positive for both investors and companies alike, if conducted with discipline.