XL teams up with Stone Point on ILS and reinsurance-linked investments

Bermuda headquartered global insurer and reinsurer XL Group is teaming up with reinsurance focused private equity firm Stone Point Capital LLC to form a new Bermuda based company to act as an investment manager in insurance-linked securities and reinsurance-linked investments.

The two firms intend to invest seed capital of $135m in the new, as yet unnamed investment manager, with XL taking 75% ownership of the company and Stone Point managed funds the remaining 25%. The newly formed investment manager will also look for additional third-party capital from investors.

The new firm will focus on investments in ILS, index-linked reinsurance as well as making investments in XL-designed reinsurance products. The investment manager will offer its investors access to the range of reinsurance capital markets products as well as more traditional reinsurance opportunities including risks underwritten by XL.

Any third-party investors in the new venture will benefit from the access to risk that a re/insurer with the size of XL Group can offer, as well as its significant underwriting and analytical capabilities and position in the reinsurance market.

For Stone Point Capital, a private equity firm with a track record and clear liking for reinsurance investments, teaming up with a respected global re/insurer like XL Group on an ILS venture is a great way for it to enter the space. With a share in an investment manager, Stone Point can benefit from the returns of the reinsurance capital markets space as well as a share in the management fees.

Stone Point is an interesting investor in the reinsurance sector and it’s not surprising to see it enter the ILS space. As we wrote earlier this month in an article on its role in the Enstar purchases of Torus, Atrium and Arden; “Stone Point Capital manage a number of equity focused hedge funds which are increasingly containing shares in firms linked to re/insurance market returns. They provide a slightly different example of third-party capital coming into the re/insurance space.”

XL Chief Executive Officer, Mike McGavick, commented; “Given the combined strength of XL’s 20-plus years of world-class reinsurance underwriting expertise and Stone Point’s proven track record of investment success in the insurance and reinsurance sectors, this initiative fits perfectly with XL’s continuing objective to offer innovative products to our clients and enhance profitability and long term value for shareholders.”

Charles A. Davis, Stone Point’s Chief Executive Officer, added; “Stone Point is delighted to be partnering with XL on this venture. Stone Point’s relationship with XL dates back to 1986 when our team assisted with the formation of the company. We believe that the convergence of the traditional insurance and reinsurance markets, and the capital markets will continue. This initiative with XL is designed to offer third-party investors an opportunity to invest in this asset class in partnership with one of the world’s premiere reinsurance underwriters.”

XL Group hired an ILS and reinsurance capital markets professional in Craig Wentzel at the end of 2012 and this seems to be the first ILS focused venture since the firm brought him on board from Deutsche Bank Securities.