Reinsurers must get creative in their investment strategies, says Third Point Re CEO
It is time for reinsurers to get more adventurous with their investment portfolios, according to Dan Malloy, chief executive of Third Point Re.
“Investors have been keeping their powder dry in the fixed income market for the last 10 years by staying with short duration and high quality, waiting for interest rates to pick up,” Malloy told Monte Carlo Today.
“But to make money you need either to invest at the long end, out to around 15 years, and take duration risk, or to invest in corporate bonds and take credit risk.
“You can’t count on your investment account to supplement your underwriting results any more.”
Malloy cited how Berkshire Hathaway makes significant returns by investing its “float” using an array of investment strategies, which includes purchasing entire companies.
“There is volatility in equity returns, and we have reduced our equity exposure this year from $1.4 billion to $850 million to allow us to take more underwriting risk,” he said.
“The Third Point fund has generated returns of around 22 percent this year to date, so we remain convinced that it will continue to be a major contributor to results.”
Malloy admitted Third Point takes less underwriting risk than some of its competitors.
“We make up for it by having a great investment strategy. Dan Loeb at Third Point is an extremely talented stock-picker,” he added.
Malloy believes the hardening market will make for an increasingly competitive hiring environment, with brokers securing their pay rises by moving between reinsurers.
“It’s hard to be an incumbent broker in a softening market because you have to be responsible and balance the long-term interest of the clients and markets, but competitors can all promise a better deal,” he said.
“In a hardening market there will be a lot of competition for accounts by new brokers, but the risk of failure to execute goes way up.”
Malloy was upbeat about Third Point’s re-entry into the cat market this year after a hiatus since 2015.
“We are very happy with the terms that have been available in the cat business we have written. It has been better than we envisaged when we agreed to our catastrophe strategy in Q3 2018,” he concluded.
