TransRe could deploy more third-party capital, if rates improve

Reinsurance firm Transatlantic Re, or TransRe for short, said that it was disappointed with the rate rises experienced at the January 2018 renewals, but noted that should rates rise further throughout 2018 it could deploy more third-party capital, alongside its own capacity.

The reinsurer said that while it did see pricing improve in property reinsurance at January 1st, it did not feel the improvement was sufficient to expand its underwriting appetite significantly as a result.

The company, which is owned by Alleghany Corporation, said that the price rises witnessed in the fourth-quarter of 2017 and at the January renewals were, “slightly below initial expectations for the property business.”

Despite the improvements seen these, “Did not merit an increase in TransRe’s risk appetite and its premium writings remained relatively unchanged both in the fourth quarter and at January 1,” the reinsurer said.

But if there is an improvement throughout the year, perhaps at the mid-year renewals where a significant proportion of the Florida and U.S. catastrophe exposed reinsurance programs are renewed, TransRe noted that it has firepower to take advantage of this, including through the use of third-party capital.

The TransRe Capital Partners business has been steadily growing the amount of third-party capital under its control, deploying it through its Pangaea collateralized reinsurance sidecar series, as well as through other arrangements and using third-party capital for retrocession.

“Should the pricing environment improve further, TransRe has significant capital available to deploy and meaningful third party capital under management,” the company explained.

It’s likely that TransRe will have made good use of third-party capital at the renewals anyway, especially where it did not feel that the cost-of-capital of its own balance-sheet capacity would support the catastrophe underwriting opportunity.

TransRe, like so many other reinsurers now, can utilise third-party capital as an efficient companion balance-sheet, enabling it to maintain a presence in property catastrophe business where its own returns cannot be as easily met.