Both of the leading and highest profile hedge fund manager backed reinsurance firms have suffered a full year investment loss in 2015, as the volatile financial market climate impacted on the investment oriented reinsurance strategy.
Global financial market volatility has hit hedge fund reinsurance firms Greenlight Re and Third Point Re throughout the year, and hitting other investment oriented reinsurance vehicles such as Watford Re as well.
It’s been a particularly tough year for Greenlight Re, backed by hedge fund manager David Einhorn’s Greenlight Capital, Inc., which has fallen to a full year negative investment return of -20.2%.
Meanwhile, the other leading hedge fund reinsurer Third Point Re, backed by hedge fund manager Daniel Loeb and his Third Point LLC firm, fared much better across the year, finishing 2015 with a negative investment return of -1.4%.
The difficulties faced may have taken some of the shine off the hedge fund reinsurance strategy in recent months, but still market sources suggest a pipeline of new companies and internal vehicles are likely to emerge as other reinsurers look to create strategies that allow for a more active investment side to the business.
Greenlight Re finished 2015 with a fourth-quarter that saw a negative investment return of -4% and a December that was down -0.1%. The full-year negative investment return of -20.2% is the worst year in the reinsurers history, reflecting just how challenging financial markets have been for hedge fund managers this year.
Meanwhile, Third Point Re reported a fourth quarter investment return of 3.1%, but in December its portfolio suffered more than Greenlight’s reporting a negative return of -1.2%. For the full-year 2015, the -1.4% return while negative will not impact Third Point Re’s results as significantly as Greenlight Re will be hit.
In an analyst report, KBW noted that despite falling to a -1.2% negative investment return in December, Third Point Re still beat the S&P500 during the month.
So Greenlight Re has experienced a very negative year on the investment side, which given its underwriting results also suffered in Q3 will likely mean a disappointing full-year result for the reinsurer.
Third Point Re however has at least recovered some of the investment losses it suffered this year, to finish just the -1.2% down. If its underwriting results have been positive for Q4 it could get close to breaking even for the year, however its combined ratio has tended to be above 100% in most quarters so that’s a big ask at this stage.
The hedge fund reinsurance strategy, of lower-volatility, longer duration underwriting together with an active investment strategy managing the premium float, continues to look challenged due to conditions in the financial markets.
However, the hedge fund managers behind these companies will have been making significant portfolio changes through the last few months of 2015, which could help these companies to perform better in 2016.
It will be interesting to see how other investment oriented reinsurance vehicles, such as Watford Re, have performed. Another vehicle, the ACE and Blackrock ABR Re joint-venture, may also have suffered on the investment side but its results are not reported publicly, so it is hard to know how badly the financial market volatility has hit its strategy (if at all).
– Hedge fund reinsurer investment returns back to negative in November.
– Hedge fund reinsurers hit by recent financial market volatility.
– Hedge fund reinsurers hit on investment side again in September.
– Greenlight Re falls to Q3 loss on Einhorn hedge fund volatility.
– Watford Re combined ratio drops sub-100, but investment losses hurt.
Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.
Get a ticket soon to ensure you can attend. Secure your place at the event here!