18 July 2013News

Third Point IPO proves reinsurance health

The proposed initial public offering (IPO) filed by Third Point Reinsurance proves that investor interest in the reinsurance sector is alive and well – although the success and pricing of the eventual offering will indicate exactly how much this is the case.

That is the view of several executives in the industry commenting in the wake of the announcement that the reinsurance company started by hedge-fund specialist Dan Loeb, has filed a registration with the US Securities and Exchange Commission for an IPO. The proposed maximum offering price is $250 million.

One industry executive said the move proves that there is demand for traditional equity investments in reinsurance companies. But he also noted that the deal’s eventual pricing will give a better indication of sentiment towards the sector.

The deal is the first deal of this kind for some time by a traditional player. Money from the capital markets has instead flooded into the industry in recent years in the form of sidecars and through insurance-linked securities (ILS) transactions.

Others agree and note that there are other indications of the sector’s health.

“Reports of the death of the traditional reinsurance sector have been greatly exaggerated (as Mark Twain did not exactly say),” said Stuart Shipperlee, partner at Litmus Analysis. “It’s not simply IPO activity that indicates that, the general degree of M&A around the sector speaks to its on-going attraction notwithstanding concerns around over capacity.”

Third Point Reinsurance was incorporated in October 2011 initially raising $784.3 million in equity capital. It began as an underwriter in 2012. The business has been led by John Berger, the former chairman of Alterra Capital Holdings.

According to the company’s filing, the company intends to increase its geographic exposure by adding reinsurance programmes from European, Asian and South American clients, though a majority of its business will continue to be from the US.

For the year ended December 31, 2012, the company generated net income of $99.4 million, which represented a return on beginning shareholders’ equity attributable to shareholders as of December 31, 2011 of 13 percent.

In 2012, its combined ratio for its property/casualty reinsurance segment was 135.5 percent, reflecting the impact of high general and administrative expenses relative to earned premiums due to the start-up nature of its business, it said.

The offering is being made through JP Morgan, Credit Suisse, Morgan Stanley, BofA Merrill Lynch, Citigroup, Aon Benfield Securities, Dowling & Partners Securities LLC, Keefe, Bruyette & Woods, Macquarie Capital, and Sandler O’Neill + Partners.