Bermuda headquartered, hedge fund backed, global reinsurance firm Third Point Re has begun to benefit from its expansion into property catastrophe reinsurance underwriting, reporting a contribution to its results that helped to lower the combined ratio.
Third Point Re has still reported a technical underwriting loss, as the combined ratio for the second-quarter of 2019 came out at 101.1%, but that’s better than the 103.6% reported in Q2 2018.
For the first-half of 2019 the combined ratio came out at an improved 102.5%, again better than the 104% reported in the prior year.
As Third Point Re continues to pivot away from the focus on longer-tailed underwriting and more active investing of its original strategy, the fresh embrace with property catastrophe risks is helping to reduce volatility and in time could help the firm get back to a technical underwriting profit, while still allocating its investments on longer-tailed risks into the Third Point LLC hedge fund investing strategies of Daniel Loeb.
As we explained before, if this expansion into shorter tailed property catastrophe reinsurance and other specialty areas can bring the underwriting side back to profitability, it can give Third Point Re a chance to let its investment strategy shine, when markets allow.
Importantly, the reinsurer’s Board affirmed the appointment of Dan Malloy to CEO of Third Point Re, providing stability at the top. Malloy has also now taken his seat on the Third Point Re Board of Directors and will serve on the Company’s Executive Committee.
Josh Targoff, Chairman of the Company, said, “Dan Malloy has been a valued senior leader of the Company since its inception in 2012, and has successfully expanded Third Point Re’s underwriting capabilities over the past quarter and positioned the Company for underwriting profit. He has proven himself to be the leader this Company needs. His long history as an underwriter and keen, shareholder-focused business sense will serve the interests of all the Company’s stakeholders.”
Commenting on the second quarter results, Mallow explained, “”I am pleased with our second quarter results as we improved our combined ratio to 101.1% and Third Point LLC delivered another solid quarterly investment return of 2.9%, bringing our year-to-date return to 10.3%.
“We delivered a return on equity of 4.0% for the quarter and 15.4% for the first half of the year.”
He continued, “I would like to highlight that our 101.1% combined ratio for the quarter means we are on track to achieve our goal of delivering underwriting profitability, subject to catastrophe events, by year end. This will be an important milestone for the company and a validation of our strategy to deliver value from both sides of our balance sheet.
“We have continued to build out our underwriting team over the past year, where we have successfully recruited talented underwriters, to allow us to expand our portfolio into new profitable lines of business including property catastrophe and specialty. We are encouraged with our progress to date with the build out of our team and portfolio positioning going better than expected.”
Achieving underwriting profitability will be a key milestone for Third Point Re, as it had always been a target even when the focus was still solely on longer-tailed lines and an investment oriented approach.
Now, having added a shorter-tailed operation focusing on property catastrophe risks and specialty lines, but keeping the longer-tailed book and the hedge fund style investment strategy, Third Point Re now has a chance to demonstrate a strategy that could outperform when investment results allow, but still profit in most other years, catastrophe losses allowing.
It’s a more balanced approach and likely to drive greater shareholder satisfaction, if executed well over the rest of this year.
During Q2 2019, Third Point Re underwrote $82.6 million of premiums, up from $49.8 million for Q2 2018. The increase in gross premiums written included $15.8 million of property catastrophe business during the quarter, the company said.
For the first-half premiums shrank slightly, a sign of the portfolio rebalancing that was required, but this was offset by $57.4 million of property catastrophe business being added as well.
The result of the shift was better underwriting results, which Third Point Re said “was primarily due to a shift in the mix of business, including earnings on new property catastrophe and specialty business.”
Also of note, Third Point Re announced the appointment of Sid Sankaran, Chief Financial Officer of Oscar Health, and former Chief Financial Officer and Chief Risk Officer of AIG, as a member of the firms Board of Directors.
Sankaran is a high profile addition and will serve on Third Point Re’s Audit Committee, Investment and Finance Committee and will serve as chair of the Company’s Risk and Compliance Committee.
Targoff stated, “I am delighted to welcome an executive of Sid’s caliber to our Board. Sid’s in-depth knowledge of the current insurance and reinsurance markets, his history of dealing with both regulators and ratings agencies, his understanding and appreciation for capital allocation, and his overall business sense and judgment will benefit our shareholders tremendously.”
Sankaran added, “I am excited about the prospect of joining Third Point Re. I believe the Company’s structural advantages position it well and look forward to working with the board members and senior executives to realize the Company’s full potential.”