Hedge fund backed reinsurance firm Third Point Re revealed an, as expected, minimal loss from recent catastrophe events in the third-quarter and also highlighted why its strategy has the potential to outperform peers, by revealing a 14.4% investment return for the first nine months of the year.
Third Point Re was never going to suffer a major loss from recent catastrophe events, given the lines of business it targets are not property catastrophe focused and its focus is on underwriting longer-tailed lines of reinsurance in order to accumulate the investment float for hedge fund manager Daniel Loeb to invest in his Third Point LLC strategies.
For the third-quarter of 2017 catastrophe events, Third Point Re said its initial net loss estimate is expected to be less than $10 million.
“Third Point Re does not write any catastrophe excess of loss contracts and had only modest losses from the recent catastrophe events,” explained Rob Bredahl, President and Chief Executive Officer of Third Point Re. “Our total return business model is to manage our investment portfolio for higher expected returns while avoiding highly volatile forms of reinsurance such as catastrophe excess of loss treaties and other event covers.”
Third Point Re used to have a catastrophe reinsurance focused ILS fund, leveraging third-party investor capital as a way to have a foothold in the property catastrophe space. But with prices declining so steeply in those lines, the reinsurer had folded its catastrophe fund some years ago, leaving it with minimal exposure to major cat loss events.
Third Point Re, like so many hedge fund backed or total-return strategy reinsurers, has had a relatively torrid time in the investment world over recent years.
Returns have not really met expectations in 2014, 2015 or 2016, but this year they are currently on track for the levels of return that could make it Third Point Re’s most profitable year since its inception.
Bredahl continued; “The estimated net investment return, as reported by our investment manager, on our more than $2.5 billion investment portfolio was 14.4% year to date through September and we estimate our total third quarter catastrophe losses at less than $10 million against total industry losses that many industry experts believe could exceed $100 billion.”
The 14.4% investment return is the best so far from Third Point Re, with its previous highest full-year investment return being only 5.1%. Analysts are forecasting a bumper profit as a result, as long as the performance on the asset side continues.
Third Point Re’s strategy helps to insulate it from these major catastrophes and its investment strategy can boost what would otherwise be an ordinary result into something extraordinary. 2017 could be that year where the hedge fund reinsurance strategy demonstrates its effectiveness, if performance continues in a similar vein in Q4, through the results of Third Point Re.