Bermuda-based property and casualty reinsurance firm Third Point Re, backed by hedge fund manager Dan Loeb’s Third Point LLC, is limiting the size of its catastrophe investment fund, citing deteriorating market conditions.
Third Point Re, through its investment manager unit Third Point Reinsurance Investment Management Ltd., operates a catastrophe reinsurance focused insurance linked investment fund named the Third Point Reinsurance Opportunities Fund Ltd. The fund had grown to $106.7 million of catastrophe assets under management by the end of March 2014.
Due to the worsening property catastrophe reinsurance market conditions, Third Point Re has decided to limit the size of the fund to protect the returns it offers to existing investors. This is quite typical in a difficult market environment. By limiting new investor access to the fund Third Point Re can prevent any dilution of the catastrophe funds returns.
CEO of Third Point Re John Berger explained during the firms recent earnings call; “Our cat fund continues to be a strategic component of our total return model, but due to rapidly deteriorating catastrophe market conditions in this segment we will limit the size of the fund to ensure we target appropriate returns for our investors.”
Third Point Re does not underwrite property catastrophe excess of loss reinsurance on its own rated balance-sheet, preferring to underwrite this type of risk solely through the catastrophe fund.
Third Point Re has a stake in the catastrophe fund too, so is also protecting its own returns which should please shareholders. At the end of March Third Point Re had $55m invested in the catastrophe fund, which Berger noted is the firms only exposure to catastrophe risk and the highly pressured catastrophe reinsurance rate environment.
Many other ILS fund managers have already shuttered their funds to new capital, so it is no surprise that Third Point Re is also protecting existing investors in the same way. With catastrophe reinsurance pricing continuing to soften, ILS and catastrophe fund managers are expected to be much more selective in when and how much new capital they take into their strategies while the current pricing and softening trend plays out.
Also read our article on Third Point Re’s results: Third Point Re reports lower income in challenging market.