Third Point to raise $250m for cat fund
The New York Times got it wrong, says Berger
The New York Times may be Third Point Re CEO John Berger’s favourite newspaper, but last week’s story suggesting that Bermuda’s reinsurance industry could be the next big financial calamity got it all wrong.
Steven Davidoff’s piece in the Times’ DealBook section suggested that this year’s influx of hedge fund-backed reinsurers into the Bermuda market, including Third Point Re, SAC Re and PacRe, may push traditional reinsurers into investing their assets more riskily.
A major disaster and a simultaneous stock market crash could then lead to a situation where reinsurers were unable to pay their claims, causing global repercussions, Mr Davidoff suggested.
“I read the New York Times cover to cover, I think it’s the best newspaper in the world,” Mr Berger said. “I love reading it. But when you see something that is not quite on target and it’s about your business, then it makes you wonder when you’re reading about other industries that you know nothing about, then how accurate is it?
“The idea that all of Bermuda is some kind of bubble waiting to explode is just wrong. I mean Arch, Axis and RenRe are good as any companies in any industry in the world. To think that, because some reinsurers’ assets are managed by hedge funds, it’s a bubble that’s going to explode — that’s just wrong.
“If they’d done more homework, they could have come up with a much better article.”
Bermuda-based reinsurer Third Point Re is aiming to raise $250 million by the end of this year to capitalise a new fund to underwrite property and catastrophe business.
John Berger, CEO of the hedge fund-backed start-up which launched operations in Bermuda this year, said the fledgling firm hoped to eventually boost the fund to beyond $500 million.
“We’re hoping to have $250 million by year-end and we’re in the process of raising money now,” Mr Berger told The Royal Gazette in Monte Carlo, where he is attending the Rendez-Vous, the reinsurance industry’s annual get-together.
“In the world of property cat, that’s very small and we know that. A real, sustainable size for that sort of business is $500 million to $600 million - and even then you’re fairly small. If we can get to that and establish a track record, then over time maybe we can make it bigger.
“Right now, we have one significant investor and we’re going to announce who that is shortly.”
Third Point Re is backed by Daniel Loeb’s US-based hedge fund, Third Point, which is under a long-term contract to manage all of the reinsurer’s assets. With the emphasis on generating returns from investments rather than underwriting, the hedge fund adopts a riskier investing approach and a more cautious underwriting approach than more traditional reinsurers, which tend to pile most of their assets into government bonds and take their risks on the underwriting side.
Third Point Re, which was founded earlier this year with around $750 million in capital, takes moderate risk in its underwriting portfolio, writing lines including multi-peril crop reinsurance, non-standard auto, standard auto and workers’ compensation.
“Because of the aggressive investing, we really can’t put super-volatile business on the Third Point balance sheet, so we have a minimal amount of property cat business,” Mr Berger said.
“But one of the main purposes of reinsurance is to provide cat capacity. So we’re going to start a separate cat fund to be able to write that business.”
The cat fund will invest its pool of capital very conservatively, Mr Berger said.
Third Point Re, which is based in offices on Pitts Bay Road, now has a staff of 18. It has hired Manoj Gupta, who previously ran a catastrophe fund for Goldman Sachs Asset Management, having also added Bryan Bumsted, formerly of Q Re and Lancashire Group, as an underwriter, backed by modelling analyst Chris Conway, formerly of Axis Re Bermuda.
The company has also set itself up for expansion and hired Clare Himmer, formerly head of International Treaty Reinsurance at Allied World in Bermuda to run a new London-based subsidiary, Third Point Re Marketing (UK) Ltd.
“The idea is that we use my contacts to open doors to some of the non-cat business for Third Point Re,” said Ms Himmer, who is also in Monte Carlo.
“Also, most of the major broking firms are headquartered in London and it has a huge reinsurance market. John was keen that our brand should have a presence there.”
Hiring people locally has become easier than it used to be, said Mr Berger, who previously led 2005 start-up Harbor Point and later the reinsurance operations of Alterra.
“We like Bermuda a lot,” Mr Berger said. “The Bermuda Monetary Authority is easy to work with. A lot of people complain about Immigration, but we’ve never had an issue. I’ve been here since 2005 with Harbor Point and we’ve never had an issue.
“Now in Bermuda, with some companies leaving and paring down, the labour pool is very attractive. The quality of the Bermudian people we see is terrific.”
So what will Third Point Re look like five years from now?
“I think we will continue to have that aggressive investment strategy, but we will probably end up looking more like a regular reinsurance company.
“We will probably have some kind of underwriting operation in London and in the United States, as well as Bermuda.”
The aim was also to become a public company, but this can only happen, said Mr Berger, when three factors align: that reinsurers’ stock market valuations rise closer to book value, that Third Point does a good job managing the reinsurer’s assets and that the firm produces sound underwriting results.