The Mt. Logan Re collateralized reinsurance sidecar operated by Bermudian re/insurer Everest Re has grown its third-party assets under management by 80% in the first-half of 2015, as the reinsurer puts an increasing focus on its companion sidecar vehicle.
At the end of 2014 Everest Re reported that third-party non-controlling assets in Mt. Logan Re had reached $421.6m. Now, at the 30th June 2015, Everest Re reports that third-party assets held by the sidecar had increased by just over 80% to $759.8m.
Mt. Logan Re is a Bermuda domiciled segregated cell reinsurance vehicle that Everest Re established in 2013, making it the firm’s main route to managing and deploying third-party capital for investors. Since it’s launch Mt. Logan Re has grown rapidly, becoming what Everest Re’s Chief Underwriting Officer termed “one of the fastest growing convergence vehicles.”
The growth has clearly continued through 2015, as Everest Re saw an opportunity to put a more efficient and lower-cost source of underwriting capacity to work alongside its own. The Mt. Logan Re sidecar is perhaps better termed a third-party capital companion reinsurance vehicle, as it underwrites alongside its parent rather than simply taking a quota share from Everest.
Everest Re has always maintained an 85% third-party to 15% own capital split in Mt. Logan Re, as its way of demonstrating skin-in-the-game by putting its own capital at risk alongside its investors.
With that in mind, based on the $759.8m of third-party assets under management at Mt. Logan Re at June 30th as the 85%, the total size of the sidecar will now be around the $900m mark ($893.88m at June 30th based on the 85%/15% ratio).
It’s safe to assume that Everest Re will have grown Mt. Logan Re a little further for the 1st July renewals, so it’s possible that the sidecar could be approaching the $1 billion mark by now.
Everest Re has taken an approach of allowing Mt. Logan to augment its own capacity in the catastrophe reinsurance space, putting the lower-cost third-party capital to work alongside its own to lower its own cost-of-capital.
That seems to have been an effective strategy, as the reinsurer has been steadily increasing the premiums written under Logan, which has helped to offset some of the decline in reinsurance premiums seen at the reinsurer overall.
The reinsurer reported:
Gross written premiums decreased 11% to $1.3 billion compared to the second quarter of 2014, but eliminating the unfavorable effects of foreign currency fluctuations, premiums were actually down 8.5%.
Worldwide, reinsurance premiums, including the Mt. Logan Re segment, were down 13%, on a constant dollar basis, while insurance premiums, excluding crop business, were up 20%, quarter over quarter.
At Mt. Logan Re alone, the firm reports an increase in gross written premiums for the quarter, from $22.4m in Q2 2014 to $37.5m in Q2 2015. For the first six months Mt. Logan Re wrote $111.5m of gross premiums in 2014, nearly double the $58.8m of GWP written in the first-half of 2014.
As a result, with more capacity deployed, attritional losses have risen at Mt. Logan Re in the last quarter. A year ago the sidecar suffered $6.19m of attritional losses in Q2 2014, with $3.9m being catastrophe related. In Q2 2015 those figures are reported as $9.2m of attritional loss with slightly lower catastrophes at $3.2m.
So as the sidecar vehicle scales the losses clearly rise. For the first six months Mt. Logan Re saw total incurred losses of almost $19.8m, compared to $16.2m in H1 2014.
However, lower catastrophes in the first-half of 2015 mean that the Mt. Logan Re combined ratio has been very attractive, at 39.4% compared to 56.2% in H1 2014. A drop in the expense ration has also helped here, which is encouraging as it will help the third-party capital vehicle maintain its efficient capital status.
Perhaps most impressive in the Mt. Logan Re results is the underwriting gain. For the quarter, the sidecar reports a $28.2m underwriting gain in Q2 2015, compared to $9.4m in Q2 2014. For the half, the sidecar reports $49.5m of underwriting gain, compared to $18.9m a year earlier.
With Mt. Logan Re having $759.8m of third-party assets under management at June 30th 2015, this is more than double the $375.9m reported at June 30th 2014. So third-party capital has roughly doubled over the year and the vehicle has reported an underwriting profit of more than double for the first-half, which should equal attractive returns for the third-party investors.
Everest Re has seen impressive and consistent growth in Mt. Logan Re’s assets under management, helping it to become the largest reinsurance sidecar in the marketplace. With further growth almost guaranteed, Mt. Logan Re may already be $1 billion in size or will be in time for the next reinsurance renewal.
Mt. Logan Re is the largest vehicle we have included in our listing of collateralized reinsurance sidecars.