Mt. Logan Re, the third-party capitalised collateralized reinsurance sidecar like vehicle of Bermuda reinsurer Everest Re, suffered some catastrophe losses due to the large events of the second-quarter, but remained profitable and expanded its investor base in the period.
Global reinsurance firm Everest Re has continued to benefit from 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.
But with a growing portfolio as its insurance and reinsurance linked assets under management have increased to around $1 billion earlier this year, Mt. Logan Re was always set to take its share of losses from the events seen in this more active second-quarter of 2016.
Speaking during the Everest Re second-quarter earnings call yesterday, the reinsurers CFO Craig Howie provided some colour on Mt. Logan’s exposure to Q2 cat loss events.
“Other income also included $3 million of earnings and fees for Mt. Logan Re in the first six months of 2016, compared to $7 million of income in the first half of last year. The decline essentially represents the impact of catastrophe losses during the first half of 2016,” Howie explained.
So impressively, Everest Re continued to benefit from fee income and likely commission earnings from the Mt. Logan Re sidecar in Q2, despite its exposure to some of the recent events. Investors will likely have seen their income from the vehicle also decrease for the quarter, but the figures available indicate that a positive return will have been maintained.
John Doucette, President and CEO of the Reinsurance division at Everest Re, explained later in the call that for investors the losses should not come as a surprise and Everest does its best to educate its third-party investors to ensure they expect that when catastrophe loss activity is high it is likely that Mt. Logan Re will take its share.
Doucette explained; “I think we communicate a lot with them on a regular basis, Logan does, about the types of losses and exposures that they had and the Logan investors get access to a global portfolio and frankly expect to get losses all over the world, not just from hurricane, not just from earthquake.”
Doucette stated that losses from events such as the Canadian wildfires in Fort McMurray were, for the investors, “nothing out of line” with their expectations from such a large catastrophe event.
And following the events Everest Re and Mt. Logan Re have not received any negative feedback from third-party investors about the types of events that the sidecar faced losses from in the second-quarter.
Q2 of 2016 provides a good example of the true value of ILS capital for ceding companies, with a number of vehicles and ILS funds creating reserves and paying claims for the recent catastrophe events. Just like any source of reinsurance or retrocession capital, the ILS market is ready and able to pay its claims when major catastrophe losses occur and investors are well-educated by managers to expect some exposure to losses of this kind.
For Mt. Logan Re the second quarter was also a positive one from the point of view of investor relations, as the investor base expanded and further capital was raised.
According to Doucette; “In Mt. Logan, we increased the number of investors, opened a new fund and raised additional capital from existing investors. Overall our AUM is about flat compared to last quarter, given some redemptions.
“We expect long-term growth and interest by investors to continue, given the unique Logan-Everest value proposition, which has resulted in best-in-class returns every year since Logan’s launch.”
Interestingly, even for a reinsurance powerhouse like Everest Re it takes time to grow a third-party capital vehicle. But with Mt. Logan Re now three years old interest from investors is expanding, Doucette said.
“As we have reached Logan’s third anniversary, new types of investors, which we have been engaging with for some time, open up to potentially invest in the platform,” he commented.
For managers of any ILS or third-party reinsurance capital vehicle educating investors, both those already invested and those not, is vital and can pay dividends in the future as the track-record is built up. Mt. Logan Re is clearly experiencing this now, with three years under its belt and impressive returns helping to encourage new investors to the vehicle.
Doucette continued; “But again, given the returns that Logan has seen, Logan investors have seen, which really are best in class, I think it just highlights the strength of diversification and the value of the mousetrap, the value proposition of the mousetrap that we’ve built between Logan and Everest.”
Third-party capital is an increasingly important part of the reinsurance proposition at Everest Re, with Mt. Logan Re growing, expanding its investor base and attracting new investors, while the Kilimanjaro Re catastrophe bonds have also provided a way for the firm to share risks with investors, while optimising its portfolio and risk profile.
“Through Logan and additionally our Kilimanjaro cat bonds, traditional reinsurance and ILW’s, we continue to optimize our network which remains well within our long standing group risk appetite,” explained Doucette.
This second-quarter of losses, which has hit the ILS market perhaps more broadly than any losses since 2011, should provide a reminder to the investor base that when major losses occur there is always a chance of impact.
Investors are clearly comfortable with Mt. Logan Re and continue to deploy capacity into the vehicle when possible, helping Everest grow its fully-collateralized reinsurance venture as and when it sees the underwriting opportunities to do so.
At around $1 billion Mt. Logan Re remains the largest vehicle we have included in our listing of collateralized reinsurance sidecars.