Exit ramp for Enhanzed Re?
A joint venture with grand potential just a few years ago appears to be ending, an apparent victim of the catastrophe reinsurance and investment markets.
It comes after substantial catastrophe and investment losses.
Enhanzed Reinsurance Ltd, the Class 4 and Class E Bermuda reinsurer, was launched several years ago through a partnership of insurance and reinsurance run-off specialist Enstar Group, global insurer and asset manager Allianz SE and specialist asset manager Hillhouse Capital Management Ltd.
It was expected to underwrite and reinsure life, non-life run-off, and property and casualty insurance business.
But last September, Enstar bought Hillhouse out, rounding out its equity stake to 75.1 per cent, with CEO Dominic Silvester saying it strengthened Enstar’s interest in a well-capitalised entity that provided diversified reinsurance capital, a significant investment portfolio and a robust deal pipeline through its partnership with Allianz.
Fast forward to this Friday when a surprise announcement has Enstar subsidiary Cavello Bay Reinsurance Limited in a new plan with Allianz and Enhanzed Re.
The agreement will commute or novate all of the reinsurance contracts written by Enhanzed Re, except for one reinsurance transaction related to a block of annuity policies written by an affiliate of Allianz, which the parties will co-operate in good faith to novate to a third party on commercially reasonable terms.
There will be a repayment of $70 million of subordinated notes issued by Enhanzed Re to an affiliate of Allianz. And Enhanzed Re’s excess capital will be distributed to Cavello Bay and Allianz in accordance with their respective equity ownership.
The transactions, the company said, will eliminate Enstar's direct exposure to catastrophe business and will result in an approximate $62 million increase in Enstar's book value, exclusive of the potential impact of a future novation of the annuities portfolio.
Enstar had previously reported that during the six months ending June 30 the Nasdaq-listed company had investment losses of $1.3 billion, which were driven by continued volatility in the global financial markets.
A company press statement said: “In the month of July 2022, our investment portfolio recognised an estimated unrealised gain of $221 million, or $12.72 per share, which was driven by an improvement in equity and credit markets and a drop in interest rates.
”These figures exclude the results of Enhanzed Re and certain other investments that are reported on a quarterly lag as disclosed in Enstar’s quarterly report.
“In addition to the strong July month end investment results, market conditions in August continue to improve which has favourably impacted our risk assets.
“As of today, equity markets were up and credit spreads have continued to improve. All in, yields remain elevated year-to-date which allows us to invest new premium at attractive levels.
“Regardless of near-term volatility, we continue to have conviction that our investment portfolio is well positioned to deliver long term value.”