Pillar Capital investment income ramps up in Q2 2016 for Alleghany

The amount of investment income recorded from insurance, reinsurance and financial services group Alleghany Corporation’s equity stake in the results of specialist ILS manager Pillar Capital ramped up again in the second-quarter of 2016.

Following a decline in the profit contribution reported by Alleghany in the first-quarter, from its investment and strategic partnership in insurance and reinsurance linked specialist ILS asset manager Pillar Capital, the figure has bounced back in Q2 2016.

It seems likely the decline reported in the first-quarter may have been a timing issue, as the bounce-back in Q2 has seen a strong recovery in the half-year performance of Alleghany’s investment and stake in ILS manager Pillar Capital.

So, for Q2 2016, Alleghany has reported $3.9m of net investment income from its equity stake in the results of Pillar Capital, up from just $1m reported for the same quarter in 2015.

Thanks to the boost in Q2 income flowing through from the equity stake in Pillar, Alleghany now reports the first-half figure as $7m, which is slightly down from the H1 2015 $7.6m of income reported.

As we noted previously, the deployment cycle of Pillar funds has likely adjusted over the last couple of years, as the ILS manager has, like so many others, shifted even more towards private ILS and collateralised reinsurance. This could also be reflected in the higher results in Q2 and go some way towards explaining the uneven income flow.

Alleghany acquired its holding in Pillar Capital when it purchased property and casualty reinsurance firm TransRe, in 2012. TransRe was already a strategic partner and had an ownership stake in Bermuda-based specialist insurance and reinsurance linked investment manager Pillar Capital.

Alleghany’s investment earnings receive an additional income boost due to the stake, as well as benefiting from an important foothold in the collateralised property catastrophe reinsurance space where Pillar Capital operates.

For Alleghany, the relationship is also one it can hope to leverage further should the reinsurance market cycle turn, as it now has a stake in an established ILS platform which can be upsized as and when market conditions are conducive.

TransRe invested $175m and Alleghany $25m in Pillar Capital’s limited partnership ILS and reinsurance-linked investment funds. The latest valuation of those investments is combined as a single figure, and reported as $227.6m, net of capital returns at the 30th June 2016, which is up from the $225.4m reported at the end of the first-quarter.

The income earned by Alleghany and the increase in the value of its investments in Pillar Capital reflect continued positive results from the manager’s ILS funds, despite the more challenging reinsurance environment.