Bermuda headquartered, hedge fund backed reinsurance firm Third Point Re is set to return to underwriting property catastrophe reinsurance next year, but this time for its own balance-sheet and as a way to help reduce its combined ratio.
Third Point Re, which is backed by hedge fund manager Dan Loeb’s Third Point LLC on the investment side of the business, used to underwrite property catastrophe reinsurance, but only for a managed catastrophe investment fund that it actively underwrote for until the end of 2014.
Third Point Re shuttered the catastrophe fund at the end of that year, folding some of its catastrophe management resources and also making a small investment into Hiscox’s insurance-linked securities (ILS) investment unit at the time.
The catastrophe fund had originally been launched alongside Hiscox, as a way for Third Point Re to earn income from catastrophe underwriting, despite the fact that at the time it did not fit its own underwriting mandate, which was for lower volatility and longer-tailed risks.
But now it seems property catastrophe reinsurance is back on the agenda, as Third Point Re President and Chief Executive Officer Rob Bredahl explained yesterday, “As part of our plan to reduce our combined ratio, we expect to begin writing a modest amount of property cat excess of loss beginning next year. To date, we have not written this class of business.”
For their own book that is, having underwritten catastrophe reinsurance for third-party capital before.
While the property catastrophe business is high in volatility, it does tend to deliver a lower combined ratio across the longer-term and this addition could help Third Point Re get closer to its goal of underwriting profitability each quarter, while the investment returns are designed to drive the profits through the hedge fund investment strategy employed by Loeb.
Third Point Re’s combined ratio was 104.9% for the third-quarter and 104.3% year to date, both of which are an improvement on the prior year.
However the firm’s investment return was disappointing and led to a small loss for Q3.
It will be interesting to see how the diversification of the Third Point Re book to include catastrophe risk makes a difference to that, also whether the firm can use catastrophe risks to generate more profit on its balance-sheet, than it had previously for third-party investors.