11 November 2020
Research by Insurance Risk Data analyses the trend of part ownership of Bermudian re/insurers by asset managers, looking in particular at the investments of Wellington, Blackstone and Carlyle. David Walker reports.
Asset managers are not just working for insurers. Increasingly they are also part-owning underwriters. Nowhere is that more evident than in Bermuda.
On the island the managers that have more than just a stake in how insurers delegate their investing include Wellington, Blackstone and Carlyle.
The trend of part-ownership of Bermudian re/insurers, first investigated in Insurance Risk Data's 2020 insurance outsourcing report, is revisited in the latest edition of the report: Insurance Investment Outsourcing Opportunities - Europe and Bermuda 2021.
The research by Insurance Risk Data puts the phenomenon of 'total return insurers' under the microscope. Total return insurers acknowledge that their investments count just as much as their underwriting, so they are prime targets for expert asset managers.
For example, Blackstone is as part-owner (10%) of Bermudian underwriter Harrington Re, which describes its business strategy as being "to couple a multi-line reinsurance portfolio with a diversified alternative investment strategy in order to earn attractive risk-adjusted returns over the reinsurance cycle".
And the premiums that the insurer makes from motor, liability, professional lines, property, credit and accident/health are described as "a 'premium float' which is invested in assets managed by the investment manager".
In 2019 premiums came to $305m. The investments are commonly alternative in nature.
In 2019 drawdown- and 'commitment-based' funds amounted to 42% of invested assets, almost double the 26% in 2018.
Source: Harrington Re 2019 Financial Condition Report, presented in Insurance Investment Outsourcing Opportunities Europe and Bermuda 2021 report , Insurance Risk Data. Investment volume is on left hand axis, proportion is on right axis.
The change was due to a 50% increase in alternative private credit, a 263% expansion of private equity and 49% increase in private real estate – all outpacing the 17% growth in invested assets to $1bn (2018: $876m).
For these, Blackstone runs a mandate, structured as a Delaware-based fund, of "diversified, primarily alternative, investments" for the insurer. Blackstone Harrington Associates is the fund's general partner.
Harrington Re's alternatives portfolio, which also included monies for tactical opportunities, made 12% in 2019, more than double the 5.6% from five kinds of 'liquid and semi-liquid' investments.
The $60m of net investment income that the re/insurer made in 2019 was ten-fold its figure for 2018.
Separately, manager Wellington has a 5.7% stake in Enstar, making it the group's fifth largest individual shareholder. This gives Wellington some stake in how at least 17 insurance subsidiaries perform, as well as at least 8 outsourced asset managers.
The insurer has a diverse collection of $14.7bn of investments that made it an eye-watering 10%, or $1.3bn, in 2019.
Its alternative investments led the charge with 27% from hedge funds and 21% from private equity, though shares (17%) also posted double-digit returns. This helped more than eclipse the 1.3% investment loss of 2018 as shares fell 14% and hedge funds lost 9%.
Investment outsourcing by Enstar includes to affiliated managers of Stone Point Capital LLC and Hillhouse – Enstar's two largest shareholders - as well as mandates for CLO debt and shares to Sound Point Capital and Marble Point Capital, Angle Point AM (fixed income, North American and global shares), Eagle Point Credit Management (credit), and Prima Capital Advisors and Sky Harbor Capital.
Enstar also has direct investments of $240m in AmTrust, the insurer, and $50 in Citco, a fund administrator.
Carlyle Group, the alternatives manager, became part of a group of investors owning 77% of Bermudian Fortitude Group Holdings that was sold off by AIG. Carlyle's stake grew from 20%, acquired back in 2018, to 72%, on the deal.
Fortitude agreed to use Carlyle for some outsourcing of investments of its portfolio, which generally is far more conservative than Harrington's.
Only 7% of its portfolio is in alternatives including mortgage- and asset-backed securities, and 3% is in junk bonds. Buying of high-grade fixed income in 2019 was for liability-matching purposes, it said.
Source: Fortitude Re 2019 Financial Condition Report, presented in Insurance Investment Outsourcing Opportunities Europe and Bermuda 2021 report , Insurance Risk Data
The reinsurer's net investment income rose 17% in 2019.
The Insurance Investment Outsourcing Opportunities - Europe and Bermuda 2021 report has outsourcing details for 40 of Bermuda's main insurers, plus details for more than 1,000 others across Europe including Switzerland. Two chapters in the report are dedicated to Bermudian outsourcing, with a table of in-depth analysis of their alternative investment types and performance in 2019, and names of the re/insurers' key investment staff. For further details contact firstname.lastname@example.org