Third Point Re CFO: We are a real insurer
A top executive of Third Point Reinsurance Ltd has stressed that the Bermuda-based firm is a “real insurance company” as US tax authorities seek to clamp down on what they consider to be hedge fund investment vehicles masquerading as reinsurers.
Third Point, founded by Dan Loeb’s fund of the same name, is one of several reinsurers founded by hedge funds in Bermuda, a group that tend to take more risk than traditional reinsurers with their investments and less risk on the underwriting side.
The US Internal Revenue Service is weighing tightening regulation for these companies.
“Anyone that spent a day in our office would clearly see that we’re a real insurance company,” Chris Coleman, Third Point Re’s chief financial officer, said at a conference in Boston yesterday, according to Bloomberg News.
Hedge fund managers like Mr Loeb, John Paulson and Steven Cohen have pushed into the Bermuda reinsurance market to access additional capital for investing while gaining tax advantages. The IRS is weighing whether to impose minimum standards for reserves or premiums to distinguish the companies that rely most on underwriting from those that depend more on investing.
Third Point Re wrote $613.3 million in premiums in 2014, a 53 per cent increase from the previous year. The company would pass proposed standards for sales, while just missing on potential reserve requirements, Mr Coleman said. He said there are “significant flaws” to some regulations under discussion, because they would apply to too much of the industry.
“There’s actually quite a few other companies that would equally fall below the threshold,” especially among insurers that shoulder risks tied to infrequent events, such as natural disasters, he said.
The US Treasury Department said last year in a letter to Senator Ron Wyden that it’s considering ways to end a “loophole” that allows companies to route investments through low-tax countries.
“I’m going to bulldog this until this is resolved,” Sen Wyden, an Oregon Democrat, said earlier this year. “These are people that are taking advantage of the law-abiding taxpayers that we’re talking about.”
Third Point Re’s Mr Coleman said the industry may get direction from the government in the next 30 or 40 days, and that he’s looking forward to receiving clarity.
“The rules have never really been challenged, so in some ways, we welcome the news from the IRS,” he said.
Third Point Re, whose investment portfolio is overseen by Mr Loeb, sold shares for $12.50 a piece in an initial public offering in 2013. Yesterday, the shares closed at $14.29 in New York trading.
“By investing in our company, you are gaining access to Dan Loeb’s Third Point investment strategy,” Mr Coleman said. “Because his funds are closed to additional investors, this is the only way to gain that exposure.”
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