Bermuda-based insurer and reinsurer Everest Re Group’s collateralized reinsurance investment vehicle, Mt. Logan Re, raised funds at the January 1st renewals despite clear dislocation in the insurance-linked securities (ILS) marketplace, and the firm expects further growth over time, according to Jim Williamson, Group Chief Operating Officer (COO) and Head of Reinsurance.
During an earnings call held earlier today after the release of its fourth quarter and full-year 2022 results, Williamson discussed the firm’s Mt. Logan Re sidecar vehicle, which has been core to its strategy in recent years, as well as the broader ILS sector.
“Clearly, ILS has been a dislocated market coming into 1/1, and for many of the reasons that have affected everyone participating in this market – there have been a lot of cat losses over the last few years,” said Williamson. “And, I think, particularly around the margins, you had a lot of investors participating in ILS vehicles and maybe didn’t quite understand or weren’t quite prepared for the prospects of having multiple years in a row of cat activity, which is not uncommon. These clusters happen. And so, that has definitely, I think, put a number of investors in a position where they’re on pause.”
On top of this, continued Williamson, there’s a lot of trapped capital from those catastrophe losses, which means that however rates, terms and conditions are trending, funds simply can’t be deployed as that capacity is reserved against prior events.
Williamson feels that this both “created and helped to contribute to a capacity crunch in the industry.”
From Everest’s perspective, all of this impacts the firm in two ways.
“On the one hand, in our primary reinsurance business, our balance sheet reinsurance business, if you will, we’re seeing all the phenomenal results that we’ve talked about; plus 50% US property cat pricing, plus 40% International, terms and conditions getting better, attachment points rising. And that’s all happening because there’s more demand for reinsurance capacity than there is supply, and part of the reason that’s occurred is because of the crunch in ILS.
“The second thing that it does is it makes it a little more challenging for us to raise funds in Mt. Logan, because investors are side-lined, or they have trapped capital,” said Williamson.
“In terms of that trade, we’ll take that trade all day long. Driving improvement in our core reinsurance business is our first priority,” he added.
Williamson went on to explain that this also inures to the benefit of the Mt. Logan Re investors who are consistently invested in the ILS space as they get better returns.
But while there was clear dislocation in the ILS sector heading in to 1/1, Williamson said that the company is still getting traction in its Mt. Logan Re sidecar vehicle.
“We did raise money at 1/1, and the team is doing an excellent job of conveying our value proposition to potential investors,” he explained.
“And in particular, unlike a lot of other vehicles in the market, our investors get the same results that Everest gets. We’re not making money when they’re not making money. So, that’s a real focus of ours and I think that’s very compelling. We have a strong pipeline of investor interest, and our expectation is that Mt. Logan will grow over the course of time and that’s a key priority for us,” added Williamson.
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