Executives of insurance and reinsurance firm Everest Re said that some churn was seen in the investor-base for its Mt. Logan Re fully collateralized reinsurance sidecar and segregated accounts vehicle, but asset growth continued year-on-year.
As we reported yesterday, the Mt. Logan Re sidecar and segregated accounts vehicle entered 2019 with $1.046 billion of assets as of January 1st 2019, slightly down from the record $1.161 billion of assets it reported as of October 31st 2018.
The reason for the slight dip in reinsurance assets managed under Mt. Logan Re is of course the catastrophe losses suffered, but impressively the vehicle still maintained year-on-year growth, having been at $1.028 billion at Jan 1st 2018.
Everest Re has not rushed to build assets under Mt. Logan Re, despite the firms broad access to insurance and reinsurance underwriting opportunities. The reinsurer prefers to adjust the asset base of Mt. Logan to suit market opportunities, rather than raise too much capital in a hurry.
Given its emerging strategy where third-party capital now contributes as much as 32% of its overall capacity, Everest Re is carefully adjusting its capital sources to maintain profitability across each of its balance-sheets (equity and third-party backed).
But reflecting the challenging period for losses that insurance-linked securities (ILS) vehicles, such as Mt. Logan Re, have faced, Everest Re was not immune and has also seen some churn in its third-party investor base in recent months.
The ILS sector has experienced a shift in investors in recent weeks and months, with some electing to cycle out of the asset class, others shifting allegiance to new managers, but still more entering the space or increasing their allocations as well.
It’s all part of the shake-out that is to be expected following the two heaviest years of catastrophe losses on record for ILS funds and investment strategies, but having maintained year-on-year growth Everest Re remains well-placed to begin to build up Mt. Logan Re assets once again.
Speaking during the re/insurers fourth-quarter earnings call yesterday, John Doucette, CEO of the Reinsurance division at Everest Re, explained, “Investors continue to support Mt. Logan, as we onboarded some new investors at 1/1 2019, resulting in assets under management being slightly up compared to a year ago.
“Investors in Mt. Logan benefit from Everest’s world-class property underwriting expertise and access to broadly diversified business from around the globe, while Everest investors continue to get the benefit of protection from Logan in above-average cat years, such as 2017 or 2018.”
Commenting on the current role of ILS and alternative capital in reinsurance, Everest Re CEO Dominic Adesso said, “We view the influence of alternative capital as somewhat neutral, due to what appears to be at least some slow-down in the rate of growth there due to lock-ups from last year and perhaps the view on adequacy of pricing.”
It is this change to neutral in the role of ILS, which perhaps refers more to whether its role is growing, that is the result of the shake-out in the investor base that has been seen.
Doucette explained this further saying that at the January renewals, “A lot of the alternative capital took a pause, we think. There’s a lot of things going on. A lot of concern about some of the losses. There’s also some investor fatigue, when it comes to some of the losses, that we’re hearing about in alternative capital.”
Commenting on Mt. Logan Re’s asset base, Doucette said, “Some existing investors have added capacity and we also have some new investors, continuing to diversify the investor base. So we would expect that to continue go up over time.”
Mt. Logan Re is seen as Everest Re’s “core securitzation vehicle,” Doucette explained, but the reinsurer assesses the need for more capital based on market conditions. But over the long-term Doucette he’d expect the AuM to keep rising.
However, after the losses even Everest Re was not immune to the desire of some investors to cycle out of the ILS market, resulting in some redemptions for the firm.
“The Logan investors buy into access to Everest’s global portfolio and underwriting expertise,” Doucette said, “But we also had redemptions in Mt. Logan as well and we think that overall, there have been redemptions in alternative capital. So I think a lot of the alternative capital has looked and said they need to understand the risks that they’re taking better.”
So it appears the churn in the ILS investor base following the catastrophes affected even some of the largest companies managing third-party capital. But it is encouraging to see that new investors are being added to compensate for those redeeming their investments.
Everest Re believes that investors are looking for better returns and so feels that some upwards rate pressure is likely at the future renewals in 2019.
“We’re hearing people are requiring a higher return,” Doucette said, adding “That’s just healthier.
“We think that the entire market, the reinsurance, traditional and alternative market is evolving after some of the hiccups that have happened recently and we think that just puts the entire market in a better place for getting an appropriate return.”