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/ By Clive Minchom /
On Monday, Third Point Reinsurance Ltd (Third Point Re) a Bermuda-based subsidiary of Daniel Loeb’s hedge fund Third Point LLC (Third Point), filed an amended offering prospectus with the US Securities and Exchange Commission (SEC) for a proposed Initial Public Offering of equity shares. It had first publicly filed the S-1 Registration Statement on July 15th, 2013, having also previously actually filed it confidentially as far back as May to first gain approval for it from the SEC.
According to the amended details of the proposed offering Third Point Re discloses that it is now seeking to raise from the IPO up to US$267 million at the mid-range of its estimates, net of estimated expenses of US$23 million, by selling a proposed 22.2 million shares at a price between $12.50 to $14.50 a share. At the midpoint of that range – i.e. US$13.50 – the prospectus states the reinsurer would then also have a total equity capitalization (at book) of almost US$1.3 billion.
The Underwriters for the offering will also have the rights to an overallotment of an additional 3.33 million shares which could raise a further about US$44.5 million for the company, if demand for the shares is strong.
Third Point created Third Point Re only quite recently, in October 2011, with an equity injection then of US$784 million and has made almost US$200 million of net profit since inception, which is not at all bad in its short history.
Together with the new money from the IPO, should it be successful, Third Point will then therefore be able to manage in total the whole US$1.3 billion of its subsidiary’s funds. At June 30th, 2013 Third Point has itself reported a total of over $13 billion of investor and partner funds under its management, so this would be a far from trivial addition.
As Berkshire Hathaway Chairman Warren Buffet, who controls the reinsurance giant General Re, tirelessly points out, the beauty of reinsurance operations is the steady inflow of premium income that comes in for the investment department to invest, prior to claims actually being made against it. And by confining yourself to reinsurance, which is a wholesale-only operation reinsuring a portion of other insurance companies’ risks, there is no need either for an army of sales-persons.
Because of these structural advantages, Bermuda or Cayman Island based wholesale reinsurance operations have started to become popular with a number of New York hedge funds, as a means of getting hold of captive investment funds to manage. For example John Paulson’s Paulson & Co., Stephen Cohen’s SAC Capital Advisors, and David Einhorn’s Greenlight Capital, all now have a reinsurance subsidiary. Greenlight’s has also been publicly listed, adding to its liquidity potential since 2007 and doing moderately well even in the down market that ensued.
In its prospectus, Bermuda-based Third Point Re has said that it plans to use the IPO proceeds for general corporate purposes and to increase its underwriting and investment capacity. Reinsurance is a very specialized business that relies on professional managers shrewdly quantifying, and pricing, the risks they take on. Sometimes, though, such insurance, or reinsurance, markets can resemble a casino just as much as stock markets occasionally do themselves, so it is far from being without risk for its investors. So far Third Point Re has an A- (Excellent) financial strength rating from A.M. Best Company, Inc.
Third Point Re’s new public share offering is being led by JPMorgan Chase, Bank of America Merrill Lynch, Credit Suisse and Morgan Stanley.
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