As of July 2015 Bermudian reinsurance firm PartnerRe is managing $134m of third-party investor capital through its Lorenz Re special purpose insurance (SPI) vehicle, with a strategic change in direction seeing the vehicle used for its segregated account status.
Lorenz Re was originally launched as a multi-year collateralized reinsurance sidecar vehicle in April 2013, with PartnerRe putting in $25m of its own capital on top of $50m raised from third-party investors.
In its launch guise, the Lorenz Re vehicle was a traditional reinsurance sidecar only, taking a retrocessional quota share from selected accounts in PartnerRe’s catastrophe reinsurance book, in order to share the profits and risks with the investors.
For 2014 the vehicle remained almost static in size, with little change, however for 2015 PartnerRe has changed its approach to the Lorenz Re vehicle and now utilises distinct segregated accounts for new retrocession protections thus giving it a broader third-party capital vehicle remit.
The original Lorenz Re sidecar transaction was renewed again in April 2015, but this time 100% of the capital put up is from third-party investors, Herve Castella, PartnerRe’s Group Catastrophe Portfolio Manager told Artemis.
The sidecar transaction renewal for this year has been internally named LRE 2015 and utilises one segregated cell of the Lorenz Re SPI.
As this transaction features a portion of PartnerRe’s portfolio, Castella told Artemis that the reinsurer has not felt the need to maintain a share of the vehicle, believing investors can see an alignment of interests as the transaction is a share of its own catastrophe book.
These sidecar transactions are purely a retrocessional quota share, providing PartnerRe with retro for its own book of business. The LRE 2015 sidecar piece of Lorenz does not underwrite on its own account, or even alongside its parent.
The sidecar, quota share style transaction has grown to $84m of third-party capital at the April 2015 renewal, within the LRE 2015 cell of Lorenz Re.
However, the Lorenz Re SPI is no longer purely used as a single sidecar portfolio vehicle, Castella explained, the remit has expanded and PartnerRe looks to use the SPI’s segregated account status to partner with additional investors, single or group’s, on other reinsurance transactions.
Castella said that these additional transactions could also take the form of retrocessional protections, or more of a companion vehicle approach, where the third-party capital is used alongside PartnerRe’s balance sheet to augment the reinsurers capacity to underwrite bigger lines.
So far, only one other transaction has been arranged within the Lorenz Re SPI, a $50m U.S. agricultural reinsurance deal which is 100% capitalised by third-party investors within two segregated cells named Demeter A and B, Castella told Artemis.
Using the Lorenz Re SPI in this way will allow PartnerRe to bring investor capital to bear in a companion style vehicle, enabling PartnerRe to write bigger lines with the support of third-party capital, Castella said.
“The original Lorenz Re was a very profitable transaction for investors,” Castella continued.
So PartnerRe is now managing $134m of third-party investor capital through the Lorenz Re SPI vehicle. This number is expected to grow and PartnerRe will likely be an attractive partner for investors looking to access reinsurance returns, although until the reinsurers future is clearer it cannot be guaranteed.
PartnerRe also continues to maintain an internal catastrophe bond fund, which it has operated since 2006 as a way to extract some profits from reinsurance business that has increasingly shifted to the capital markets.
The cat bond fund has shrunk in recent years, coming in around $100m we understand, but Castella said that in the future the track record it has built could prove attractive and enable it to raise additional third-party capital for that strategy as well.
PartnerRe has adjusted its accounting for the Lorenz Re vehicle, meaning that it will be harder to track through the reinsurers quarterly results, as we suggested may have been the case. However it seems the reinsurer is as serious about partnering with third-party investors and ILS capital as ever before, and it seems safe to assume that Lorenz will remain a key piece of this strategy.
For more on collateralized reinsurance sidecars and third-party reinsurance investments vehicles, view our list of reinsurance sidecars.