Pillar Capital ILS fund income recovers in 2019 for Alleghany

Income earned from its stake in specialist insurance and reinsurance linked ILS asset manager Pillar Capital and its funds has risen significantly in 2019, as catastrophe loss activity clearly had less of an impact during the year.

Having reported an investment loss of -$1.7. million for 2017 and an even more catastrophe hit -$6.5 million for 2018, insurance-linked securities (ILS) fund manager Pillar Capital delivered a much more positive $15 million of investment income to Alleghany in the full-year 2019.

The first-half of 2019 saw Alleghany reporting $4.4 million of income from its investments in Pillar Capital and the manager’s ILS funds, up from just $1.9 million for H1 2018.

The third-quarter of 2019 saw Alleghany report a further $7.2 million of positive investment income, taking the first nine months of the year to $11.6 million, up significantly from 2018’s $1.2 million.

Now, the final quarter of last year’s results are in and Alleghany has reported another $3.4 million of positive investment income from Pillar Capital’s ILS operations for Q4 2019, up significantly again from a -$7.7 million hit in Q4 2018.

So the recovery from prior year losses continued all the way through 2019 for Pillar Capital’s ILS and reinsurance focused fund strategies it seems, delivering a welcome boost to investment income for Alleghany.

Alleghany and its reinsurance subsidiary TransRe both made investments in ILS manager Pillar Capital. TransRe took an ownership stake in Pillar back in 2012. The reinsurer also invested $175m and Alleghany invested $25m at the time, into Pillar Capital’s limited partnership ILS and reinsurance-linked investment funds.

That investment fluctuated in value over recent years, partly due to the impact of catastrophe losses on the Pillar Capital ILS funds of course, but also due to returns of capital.

In recent years the carrying value of its investments in Pillar Capital its ILS funds had reached levels as high as $230 million for Alleghany.

But after the catastrophe losses the value naturally fell, recovering to reach $198 million, net of returns of capital to Alleghany, by the end of Q2 2019.

The second-half of 2019 saw the value of its ILS investments rise further for Alleghany, reporting them as reaching $205.5 million by December 31st, which is again net of any returns of capital received.

Pillar Capital has added significantly to its ILS and reinsurance linked assets under management in the last year, growing them to over $1.73 billion by the beginning of 2020, a roughly 68% increase in just one year.

As a result the ILS manager’s ability to generate profits to share with its partners in Alleghany will have increased as well, suggesting we could see the carrying value of the Pillar ILS related investments increasing further over the coming year.