Global reinsurance firm PartnerRe increased the amount of premiums ceded to its fully-collateralized reinsurance sidecar, Lorenz Re, in the second-quarter as the firm appeared to leverage the sidecar more for its own retrocession needs.
Lorenz Re is the third-party capital convergence vehicle of PartnerRe, providing it with a way to leverage investor capital alongside its own balance-sheet in its underwriting.
During the second-quarter it appears that PartnerRe decided to make use of the sidecar more for its own retrocession needs, rather than as a companion vehicle underwriting alongside it, retroceding an increased amount of business to Lorenz Re.
The Lorenz Re Ltd. collateralized reinsurance sidecar was launched in March 2013 by PartnerRe, capitalised with $75m in total, of which $50m was from third-party investors, with the company aiming to maintain a one-third share of the vehicle.
There had been no noticeable increase in reported non-controlling interests in the vehicle, as PartnerRe appeared satisfied to leave Lorenz Re around the $75m mark.
However, at the latest reporting interval, at June 30th, PartnerRe appears to have given back the majority of Lorenz Re’s third-party capital, as it reports non-controlling interests (which are thought to represent Lorenz Re) had dropped from $57.7m at March 31st 2015, down to just $2.2m at June 30th.
This could be an accounting issue, making it appear like the capital has been given back and PartnerRe may actually have renewed the Lorenz Re sidecar for the July 1st renewal, it’s impossible to confirm. Or, the reinsurer may actually have returned the majority of its third-party capital, we’ll update you if/when we can confirm.
It certainly looks like the third-party capital contribution in Lorenz Re has significantly shrunk over the quarter, with PartnerRe reporting that income paid to non-controlling interests was just $354,000 for Q2 2015, compared to $2.182m in Q1 2015 and $1.951m in Q2 2014.
It’s not clear whether PartnerRe has elected to return the third-party capital in Lorenz Re, perhaps due to the ongoing AXIS Capital and EXOR M&A uncertainty, or whether Lorenz Re is being renewed, resulting in a return of capital at 30th June. If the third-party capital has been downsized it’s possible PartnerRe is maintaining the vehicle for internal retro use. Again, we’ll try to confirm when we can.
One thing is certain, PartnerRe used the Lorenz Re vehicle for retrocession during the second-quarter, citing “higher premiums retroceded to the Company’s third-party capital vehicle, Lorenz Re” in the non-life North American reinsurance sub-segment.
In the catastrophe reinsurance sub-segment the retrocessional use of Lorenz Re was even more apparent, with “net premiums written were down by 44% primarily due to higher premiums ceded under the Company’s retrocessional program to Lorenz Re, cancellations, non-renewals and timing differences.”
So it’s not possible to currently report the size of the Lorenz Re sidecar. It looks to have shrunk dramatically but, as we said, that could be due to a renewal or other accounting reason, or it could be a return of capital to investors and a change in strategy to an internal retro sidecar vehicle.
If EXOR is successful in buying PartnerRe it will be interesting to see how the investor approaches third-party reinsurance capital. It might suit EXOR’s strategy better to leverage Lorenz Re is an internal retro vehicle, allowing it to extract more of the premium from the business it underwrites (which may be the way PartnerRe is going anyway).
If any further information on the Lorenz Re sidecar emerges, giving us a better view of its side or PartnerRe’s current strategy for the sidecar vehicle, we will update you.
For more on collateralized reinsurance sidecars and third-party reinsurance investments vehicles, view our list of reinsurance sidecars.