Catastrophe Reinsurance “Permanently” Hobbled, Third Point Re Focuses Elsewhere

The catastrophe reinsurance market is not worth the cost of admission but there are opportunities elsewhere, according to executives at Daniel Loeb’s Third Point Reinsurance Ltd.

“In our view, the outlook for the cat market remains challenged with little opportunity for improvement over the medium term,” said Robert Bredahl, Third Point Re’s president and COO during Friday’s earnings conference call.  “In fact, we believe that the significant influx of capital directly into the cat market through fund structures has permanently lowered potential profits in this segment.”

Third Point Re reported a fourth-quarter loss of $14.7 million, primarily tied to a 40 basis point investment decline posted by Loeb. Third Point had reported a profit in the same period a year earlier.

In December Third Point  Re announced it was dropping its catastrophe fund platform called Third Point Reinsurance Opportunities Fund Ltd and transferring the remaining business to Hiscox Insurance Company.

Bredahl added that while the existing fund’s performance is keeping pace, the possibility of drumming up new catastrophe business is not on the table.

“While we are pleased with our cat fund’s investment performance, catastrophe reinsurance pricing and the fees available to manage cat risks have decreased significantly over the last two years,” he added.

Instead, Third Point Re is focusing on “few numbers of larger deals” outside of catastrophe, said CEO John Berger. He then offered up recent new deal examples, including a $125 million multi-line contract out of London, a $45 million dollar loss reserve contract and a $27 million Florida’ homeowners facility with “limited catastrophe exposure.”

Berger explained that Third Point’s structure, including its recently opened U.S. office, will lend itself its strategy.

“The U.S. operation will be the regular business that we write, the non-standard auto, the non-Florida homeowners, the Texas homeowners,” Berger said, adding that having a U.S. base will allow the reinsurer to conduct claims and underwriting audits with cedants on a regular basis. “In Bermuda, we will be doing the reserve deals anything out of the Bermuda market obviously anything out of London International business will come through the Bermuda office. But we have very, very clear guidelines on what is done where.”

As for the appetite to play in the current merger mania going on in the reinsurance industry, Berger dismissed the likelihood that Loeb’s company will play a part.

“Our model is with the emphasis on the more risk taking on the investment side and then tailoring our underwriting to that really limits the companies that would make sense for us to acquire,” Berger explained. “Also you look at valuations reasonably good companies are going to go for a pretty high price. So I really don’t see its being active in that area. “

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