Mt. Logan Re, Ltd. is the securitisation vehicle for Everest Re Group, Ltd. (NYSE: RE), one of the largest professional (re)insurers in the world. Mt. Logan Re, domiciled in Bermuda, is registered as a Class 3 insurer and a Bermuda segregated accounts company and has been in operation for nearly four years in the insurance-linked security market.
The Mt. Logan Re platform leverages Everest Re Group’s (Everest Re) four decades of involvement in the (re)insurance industry, its long-standing customer relationships, global scope, analytical platforms, and underwriting talent to build portfolios of securitised risk for investors. This risk is accessed by investors through the purchase of non-cumulative preference shares that are linked to distinct and separate segregated accounts managed by Mt. Logan Re.
- Please share with us a bit about your background, and in particular what led you to starting an insurance-linked securities (ILS) fund?
I have been in the reinsurance business for over 30 years having started my career at General Reinsurance. Early on I gravitated to the newly emerging ‘convergence’ reinsurance market where the industry was beginning to experiment with capital market structures as alternatives for traditional reinsurance solutions. After General Re I joined Zurich Reinsurance Centre where I ultimately headed up one of their four treaty reinsurance divisions. After that I went to Swiss Re New Markets where I served as the global head of structured life reinsurance.
I have always tried to anticipate and embrace change. After the financial crisis it became clear that the ILS asset class had a place in the world of alternatives as it displayed little to no correlation with the broader credit and equity markets and produced attractive risk adjusted returns. The performance of the ILS asset class during the financial crisis validated this value proposition. I knew then that the asset class was poised to take off and I knew that I wanted to be part of it.
John Doucette, the President & CEO of Everest Reinsurance, and I worked together at Swiss Re for five years and shared a similar vision with regard to the opportunity associated with ILS. Together we set out to build the optimal platform that balanced the interest and demands of investors with the capital management needs of Everest Re. Four years in now and I am happy to say that it has been a success story.
- Mt. Logan Reinsurance offers five different portfolios. Could you briefly introduce to our readers the exposure you undertake in these portfolio
Mt. Logan Re assumes property insurance, reinsurance, and retrocessional risk from Everest Re on an equivalent basis. The five main portfolios managed by Mt. Logan present investors with the opportunity to participate in segments of the Everest Re property reinsurance portfolio that most align with the investors risk/return objectives. The composition of the existing Mt. Logan portfolio varies based upon exposure to peak perils and regions throughout the world. Mt. Logan utilises proprietary optimisation techniques to construct three of its five main portfolios.
- What are the mainly traded instruments for each of the portfolios and the average holding period for your portfolios’ investments?
Mt. Logan sources all business solely from Everest Re. It does not trade third party catastrophe bonds, or participations in other collateralised reinsurance vehicles. The underlying portfolios are constructed from a universe of over 2,500 individual reinsurance contract participations sourced and underwritten by Everest Re.
- Your underlying portfolios have done exceptionally well when compared to the Eurekahedge ILS Advisers Index which gained 5.19%. As we know, 2016 was also marked by a string of natural catastrophes. How did your fund weather the storm?
Our strategies performed within a reasonable range of modelled expectations reflective of industry loss activity. Specifically, Mt. Logan’s 2016 investor returns reflected a year with active global attrition loss activity as opposed to a year with one or more large catastrophe events.
- What are some of your investment philosophies which you feel differentiates you from your peers?
Mt. Logan deploys active, passive, and filtered passive investment strategies. Our active approach uses an open source genetic algorithm within a proprietary framework to build balanced optimised portfolios for investors. This optimisation methodology can create several points of expected return over traditional contract selection methods. In addition, our access to business through Everest Re and the ability to improve portfolio diversification through contractual arrangements with Everest Re are also competitive advantages for Mt. Logan.
- What determines your decision in your trading position with respect to the risk you are willing to take? How would you balance out your allocations vis-à-vis the probability of the occurrence of a catastrophe?
Mt. Logan Re carefully balances each portfolio to ensure there is significant global diversification across 20+ peril/region combinations. This diversification leads to greater opportunity to earn positive risk premiums without adding materially to investor downside. To enhance returns and risk diversification, efficiently priced hedging is employed.
- What are some types of potential catastrophic events which your funds are exposed to, and what is your geographical weighting across your allocations?
Depending on portfolio strategy, each account is exposed to varying levels of risk from US Windstorm, US Earthquake, US Severe Convective Storm, European Wind/Flood/Earthquake, Japan Earthquake/Flood/Wind, Australia Wind/ Bushfire etc. and numerous others; 20+ perils regions around the world.
- Insurance-linked securities offer uncorrelated returns to investors, how has investor reception been to the ILS market over the past few years, and what are your expectations on investor interest in this market going into the next five years?
Capital entered into the ILS market at a staggering annualised growth rate over the last five years, as investors increasingly recognised the absolute return potential as well as the lack of correlation to the broader financial markets. Once investors commit some time into learning about the underlying risk and how it is managed, they attain a much deeper appreciation for where the longer term opportunity lies for this asset class. There is no sign of allocation to this sector slowing down in the near future. Investors will remain committed to this market as long as their selected investment managers can appropriately put the capital to work into both quality underlying reinsurance business, and in a timely manner (e.g. not just commitments of capital waiting to be deployed).
- What are the types of investors that have shown interest in this fund so far? Moving ahead, what kind of investors would you like to target this fund towards?
ILS has generated interest from asset managers, pension funds, family offices, hedge funds, mutual funds, endowments, insurance companies as well as high net worth individuals. Mt. Logan Re’s current investors cover all of those investor types, and most have continued reinvesting over their tenure partnering with us. For Mt. Logan Re, we are looking for investors that have a mind-set of long-term partnership – think of it as a multi-decadal timeframe. So we are agnostic in the investor type, and look more towards investor behaviour and relationship.
- What is your outlook of the reinsurance market in 2017, and the factors which will impact this market?
As with any industry, partnering with the best participants in that market is always the best strategy. The best participants in ILS are ones that have the best access to the underlying business, and can negotiate the best return for themselves and their investors. These are the partners that can endure and exploit the good, bad and the best of times for their respective sectors. We simply believe that the choice of the right partner will dictate the future of the returns that an investor can expect to realise.
Frederick “Rick” Pagnani
Chief Executive Officer
Mt. Logan Re, Ltd.
+1 441 299 050 / +1 908 256 9246