Bermuda based reinsurer PartnerRe has returned a larger amount of capital to investors in its fully-collateralized reinsurance sidecar vehicle Lorenz Re in 2014 than the firm did in 2013, according to its latest results.
The Lorenz Re Ltd. collateralized reinsurance sidecar was launched in March 2013 by PartnerRe, capitalised with $75m of which $50m was from third-party investors, while the reinsurer said it wanted to maintain a one-third share of the vehicle.
Unlike other reinsurers, PartnerRe has not elected to grow its Lorenz Re sidecar over the last two years, instead keeping it around the $75m mark, with no noticeable increase in reported noncontrolling interests.
In the reinsurers latest results that were released last night, PartnerRe reveals that total non-controlling interests, understood to be the third-party investor capital in Lorenze Re, amounted to $55.5m at the end of 2014, slightly down from $56.6m at the end of 2013.
Over the course of 2014 PartnerRe returned a growing amount of income capital to investors in Lorenz Re. For the fourth-quarter the firm reports income paid to non-controlling interests (third-party investors) of $3.225m, down slightly from $4.138m for Q4 2013.
For the full-year of 2014, income paid to non-controlling interests is reported as $13.139m, compared to $9.434m in 2013. The return of capital to noncontrolling investors over the whole of 2014 would therefore appear to be approximately 17.5% of the $75m sidecars capitalisation (almost 24% of the $55.5m of third-party capital), which if only from the Lorenz Re sidecars income and profit return is very impressive.
Lorenz Re has consistently returned income to non-controlling interests from the vehicle over its life, helped by the fact PartnerRe launched the vehicle by ceding an existing book of property catastrophe reinsurance business into Lorenz Re. It’s assumed that the firm did the same for 2014, with a whole quota share rather than Lorenz Re writing its own business contract by contract, as some other recent sidecars do.
The Lorenz Re sidecar is a special purpose insurance vehicle and was structured as a multi-year vehicle, which means that the renewal is due again in April 2015, we believe. At that point in time PartnerRe will have the opportunity to allow more capital into Lorenz Re, which would allow it to grow the amount of business it cedes to Lorenz investors or to allow Lorenz to underwrite for itself.
In the second half of 2014 Costas Miranthis, CEO of PartnerRe, said that investors in Lorenz Re appeared happy based on the information they receive on their investments in the sidecar and that “We will see what happens in April,” when asked whether the firm would seek to upsize the vehicle.
PartnerRe, of course, is now the focus of one of the reinsurance market M&A deals, specifically with AXIS Capital. The firm’s said that the combined entity will have an enhanced ability to leverage third-party capital. As a result, it will be interesting to see whether PartnerRe chooses to grow Lorenz Re in April or whether it waits until the firm’s are combined.
For more on collateralized reinsurance sidecars and third-party reinsurance investments vehicles view our list of reinsurance sidecars.