Bermuda-based hedge fund strategy reinsurer Third Point Re is to close its ILS fund, the Third Point Reinsurance Opportunities Fund Ltd., folding some of its cat management resources and making an investment into Hiscox’s Kiskadee Investment Managers.
The move will allow Third Point Re to focus on its core reinsurance operations, while moving the catastrophe fund resources over to Hiscox’s Kiskadee. Third Point Re’s catastrophe fund had been a successful venture but in the currently challenging property catastrophe reinsurance market the need to have scale of capital perhaps made the venture less relevant over time to Third Point.
Third Point Re says it will contribute certain resources of Third Point Reinsurance Investment Management Ltd. into Hiscox’s Kiskadee insurance-linked securities (“ILS”) platform, while the remaining exposures in Third Point Reinsurance Opportunities Fund Ltd. will be wound down.
Third Point Re will also make an investment into the Kiskadee ILS funds and Manoj Gupta, the portfolio manager of the Third Point Re cat fund, is expected to serve as an advisor to Kiskadee Investment Managers Ltd.
Gupta will also continue to work for Third Point Re, serving in various underwriting and corporate roles at the reinsurer. In addition, Third Point Re and Kiskadee intend to further develop their strategic relationship to include non-ILS business opportunities.
John Berger, Chief Executive Officer of Third Point Re, commented on the changes; “While our existing cat fund has delivered very attractive returns to investors since its inception in January 2012, we are mindful of the increasingly difficult conditions in the catastrophe reinsurance market in the near term and the increasing value of a broad underwriting platform. For investors that seek to participate in the catastrophe reinsurance market, we believe Hiscox provides an outstanding franchise for sourcing risk around the globe. We look forward to supporting Hiscox across both the Kiskadee ILS platform and non-catastrophe reinsurance opportunities in the future.”
Hiscox had actually seeded the Third Point Re catastrophe fund at the beginning, so the partnership is a natural progression of that. The investment, which amounted to $13.2m and represented a 32% non-voting interest holding in the Third Point cat fund, was subject to a two-year lock-up period which began on the 27th December 2012, so is about to come to an end.
The Third Point Reinsurance Opportunities Fund grew its net assets under management to $117.9m at the end of September 2014. At that size the fund, while profitable as recent results showed, is likely a bit of a distraction at the reinsurer who underwrites entirely different classes of business.
With Hiscox’s Kiskadee unit likely having more focus and resources, it makes perfect sense for the investment to go the other way this time, while resources can be shared to help Kiskadee grow further. As the Third Point Re fund gets wound down any of that business that can be renewed and which fits the Kiskadee mandate likely could be, boosting the size of Hiscox’s ILS venture as well.
In the currently challenging reinsurance market environment we keep saying that scale matters. That is likely true in insurance-linked securities (ILS) fund management as well, so combining the resources and some of the capital of these two will result in a more viable single entity going forwards.