As hedge fund-backed reinsurer Third Point Re continues to build and evolve its underwriting platform, which now includes property catastrophe reinsurance business, it expects to achieve underwriting profitability within the next year or so, according to Dan Malloy, Third Point Re’s Chief Executive Officer (CEO).
The hedge fund-backed reinsurer adopts an investment oriented business model, meaning it looks to offset lower underwriting returns with investment gains.
In the first-quarter of 2019, Third Point Re’s significantly improved investment performance more than offset another underwriting loss, helping the firm report quarterly net income of $132.9 million.
Third Point Re said in the third-quarter of 2018 that it remained investment-oriented, with the performance of this side of the balance sheet being the key driver of its financial results.
However, the reinsurer also revealed at this time that it now made sense to add some higher margin, higher risk business to its reinsurance portfolio, stating that from January 1st, 2019 it would start writing property catastrophe business.
Speaking during the reinsurer’s first-quarter 2019 earnings call, CEO Malloy discussed the company’s evolving underwriting platform.
“As we’ve talked about for several quarters, we continue building our underwriting platform and are shifting our portfolio to higher margin business. These changes are projected to drive our combined ratio below 100%,” said Malloy.
In Q1 2019, Third Point Re reported a combined ratio of 103.8%, which is a slight improvement on the 104.5% reported in Q1 2018.
During the first-quarter of 2019, the company wrote roughly $42 million of property catastrophe premium, and as the company grows, it might also proportionately increase the overall size of the cat portfolio, explained Chris Coleman, Third Point Re’s Chief Financial Officer (CFO).
Malloy, continued: “Our plan has gone very well with access to business, portfolio metrics, and premium written all better than expected. Our prospects for June 1 also look very attractive. We will have opportunities to review a large number of Florida catastrophe accounts and expect to write a further $10 million of premium in this hardening market.”
Reinsurance rates are expected to improve in a meaningful and hopefully sustainable way at the upcoming mid-year renewals, when the loss-affected U.S. business is up for renewal. Third Point Re’s expansion into the property cat arena shows that is looking to take advantage of more favourable underwriting conditions for reinsurers, but as noted by Coleman, this does also increase its exposure.
“In addition, we are now more exposed to potential losses from natural catastrophes and we are also mindful of that,” said Coleman.
If Third Point Re can maintain its impressive investment performance achieved so far in 2019, while also producing a positive return on its underwriting, then its net income stands to increase substantially in the months ahead. However, with the start of the 2019 Atlantic hurricane season not too far away, the loss events of 2017 and 2018 serve as a reminder that with natural catastrophes it is always a matter of when, and not if.