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IPO Report: Third Point Reinsurance Ltd. (TRPE)

By  +Follow August 14, 2013 1:33PM
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Three other IPOs were scheduled for the week of August 12. The full IPO calendar can be found at IPOpremium.

Third Point Reinsurance Ltd. ($TRPE) is based in Bermuda and scheduled a $300 million IPO with a market capitalization of $1.36 billion, at a price range mid-point of $13.50, for Thursday, August 15, 2013.

The price-range S-1 was filed August 5, 2013.  The manager and joint managers are: J.P. Morgan; Credit Suisse; Morgan Stanley; BofA Merrill and Citigroup.  The co-managers are Aon Benfield Securities; Dowling & Partners; Keefe, Bruyette & Woods (A Stifel Company); Macquarie Capital; Sandler O'Neill + Partners.

Summary

TRPE is a relatively new Bermuda-based property and casualty reinsurer. TRPE began operations January 1, 2012.

Because TRPE is new, it has a clean balance sheet, no debt and limited legacy liabilities, meaning no opportunity for surprise reserve increases.

For the six months ended June 30, 2013 net income was $112, which includes investment income of $112 million. In July TRPE generated $28 million in investment income.

TRPE has a very experienced management team.

Valuation

Newer property and casualty companies start out with a high combined ratio (lower is better). TRPE's combined ratio for the six months ended June, 2013 is 108%. All of TRPE's income for the six months ended June 30, 2013 is from investments, managed by a large hedge fund on an outsourced basis.

The outsourced hedge fund investment return seems quite high, and was perhaps somehow created to assist TRPE's IPO. The hedge fund's manager is also a shareholder of TRPE.

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing June 6 mos '13

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Third Point Reinsurance Ltd. (TRPE)

$1,364

5.6

6.8

1.1

1.1

22%

Glossary

Conclusion

Neutral to negative because more than all the profits for the 6 months ended June 30, 2013 came from 'investments', which are managed by a relatively large hedge fund on an outsourced basis.

One of the hedge fund's officers is also a shareholder in TRPE...which begs the question of whether those outsized investment profits were 'manufactured' to help the IPO.

Business

TRPE is a Bermuda-based property and casualty reinsurer with a reinsurance and investment strategy that TRPE believes differentiates it from competitors.

Substantially all of TRPE's investable assets are managed by its investment manager, Third Point LLC, which is wholly owned by Daniel S. Loeb, one of the founding shareholders. Third Point LLC is an SEC-registered investment adviser headquartered in New York, managing $13.2 billion in assets as of June 30, 2013.

TRPE starting writing insurance January 1 2012, and has an A.M. Best rating of A-.

History

TRPE was incorporated on October 6, 2011 and completed its initial capitalization transaction on December 22, 2011 with $784.3 million of equity capital, and commenced underwriting business on January 1, 2012. In January 2012, TRPE received an A- (Excellent) financial strength rating from A.M. Best Company, Inc., or A.M. Best.

11% return (not annualized) on equity for period ended June, 2013; 13% annualized return since January 2012.

Third Point LLC

TRPE's assets are held in a separate account and managed by Third Point LLC on substantially the same basis as its main hedge funds, including Third Point Partners L.P., the original Third Point LLC hedge fund.

Management

TRPE's management team is led by John R. Berger, a highly-respected reinsurance industry veteran with over 30 years of experience, the majority of which was spent as the principal executive officer of three successful reinsurance companies.

In addition, TRPE recruited a management team around Mr. Berger that also has significant senior leadership and underwriting experience in the reinsurance industry.

5% shareholders before IPO

KIA TP Holdings, L.P., 33.15%
KEP TP Holdings, L.P., 33.15
Pine Brook LVR, L.P., 16.76%
Daniel S. Loeb, 10.75%
P RE Opportunities Ltd., 6.75%

Use of proceeds

TRPE expects to net $267 million from its IPO.

TRPE expects to contribute substantially all the net proceeds to its subsidiary's (Third Point Re)'s surplus to increase underwriting capacity in order to support the growth of reinsurance premium writings.

 

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By  +Follow August 14, 2013 1:33PM
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