Bermuda-based property and casualty reinsurance firm Third Point Reinsurance Ltd., backed by hedge fund manager Dan Loeb’s Third Point LLC, reported a 129% increase in net income for the full-year 2013.
Strong investment results at Third Point Re, whose investable assets are manged by Daniel Loeb’s Third Point LLC hedge fund helped to drive the strong results, with net investment income having nearly doubled during 2013, compared to 2012. At the same time improved underwriting results helped to drive a strong second year for the reinsurer.
It is only the second year of results for Third Point Re, a year in which the firm successfully IPO’d and listed on the New York Stock Exchange. However the strong performance of the investment portfolio, along with consistent improvement in underwriting results, make the results look particularly attractive year on year.
Third Point Re reported net income of $80.1 million, or $0.75 per diluted common share, for the fourth quarter of 2013, compared with $60.7 million, or $0.76 per diluted common share, for the fourth quarter of 2012, up by 32%. For the full year to December 31, 2013, Third Point Re reported net income of $227.3 million, or $2.54 per diluted common share, compared with $99.4 million, or $1.26 per diluted common share, a year earlier, which is up by 128.7%.
“In 2013, our second year of operation, we made great strides in establishing our “Total Return” platform, a combination of best in class reinsurance underwriting and market leading investment management”, said John Berger, Chairman, Chief Executive Officer and Chief Underwriting Officer. “Thanks to improving underwriting results and exceptional investment returns, we increased diluted book value per share by more than 20% for the year.”
Premiums written during 2013 were up by over 100% on 2012, with $393.6m underwritten during 2013. The firm attributed the big increase to its continued development, building underwriting relationships with intermediaries and reinsurance buyers and the timing of the completion of several large transactions. As a result premiums earned during the year climbed by 120% to $212.6m. The combined ratio of Third Point Re’s property and casualty segment dropped from 129.7% at the end of 2012 to 107.5% at the end of 2013.
Showing how the hedge fund reinsurer strategy can boost reinsurer returns, Third Point Re recorded net investment income of $253.2 million, compared to $136.4 million for 2012. The return on investments managed by Third Point LLC, was 23.9% for 2013 compared to 17.7% for 2012.
These strong investment returns allow reinsurers like Third Point Re to target lower volatility reinsurance underwriting business, than reinsurers with traditional investment strategies, with the investment side of the business providing a valuable boost to overall income and shareholder returns.
Third Point Re’s catastrophe fund business, the Third Point Reinsurance Opportunities Fund Ltd. managed by Third Point Reinsurance Investment Management Ltd. and underwritten through Third Point Re Cat Ltd., ended its first year with a positive contribution to the firms results (it began operations on 1st Jan 2013).
After attributing income to non-controlling interests, net income to Third Point Re from the catastrophe investment fund operations was $0.8 million for the fourth quarter of 2013 and $3.4 million for the full-year. The Third Point Reinsurance Opportunities Fund grew its net assets under management slightly to $104. million as of December 31, 2013, up from $100.5 million at September 30, 2013.
Third Point Re’s results provide another good example of the attraction of having a high-performing asset manager behind a reinsurance business, with the strong investment results driving performance higher. With 2014 having already seen a number of new hedge fund, or asset manager, backed reinsurer start-ups it seems likely that this segment of the reinsurance market will continue to grow, providing interesting opportunities to the insurance linked investment community.