Third Point Re CEO unveils strategy to achieve underwriting profit

Bermuda-based Third Point Re has not made an underwriting profit in the past five years but CEO Robert Bredahl has now revealed a strategy to improve underwriting performance and push the combined ratio below 100 percent.

Third Point Re’s combined ratio was 107.7 percent in 2017, a slight improvement compared to 108.5 percent in 2016. In 2015, the combined ratio was 104.7 percent, following 102.2 percent in 2014 and 107.5 percent in 2013.

“Our underwriting focus to date has been to generate stable, long-term float and to minimize underwriting risk by focusing on quota share contracts of less volatile lines of business,” Bredahl said in the firm’s 2017 annual report. “The economic engine in our total return business model is investment income, and therefore our priority to date has been to increase investment leverage through float generation from our reinsurance business.”

But while Bredahl is satisfied with the investment returns, he now wants to improve the performance on the underwriting side of the business.

“Although investment results will continue to be a key driver of our success, we believe that we are now in a position to incrementally increase the risk profile of our reinsurance portfolio and to work towards having our reinsurance operation contribute underwriting profits in addition to generating float,” Bredahl said.

“We believe that the benign catastrophe years and the outsized profits earned by reinsurers leading up to 2017 masked inadequate pricing in non-catastrophe lines. The recent catastrophes have highlighted poor results in attritional lines of business and we were able to obtain improvement in prices and terms and conditions on contracts that we renewed in early 2018,” he noted.

But because Bredahl does not believe that the price improvements will allow Third Point Re to achieve a combined ratio below 100 percent, he is suggesting changes to the firm’s underwriting strategy.

“To lower our combined ratio, we plan to increase our writings of specialty lines, lower layer excess covers, and shorter tail event-type covers. We plan to slowly and incrementally shift our underwriting portfolio over the next couple of years to these lines of business with higher expected margins,” Bredahl explained.

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