Third Point Reinsurance Ltd., which counts billionaire hedge-fund manager Daniel Loeb as a founding shareholder, advanced in its trading debut after raising $276 million in an initial public offering.
The shares climbed 4.5 percent to $13.06 at 4:15 p.m. in New York. The company and existing owners sold 22.1 million shares for $12.50 each, according to a statement yesterday. Earlier Third Point Re had offered 22.2 million shares for $12.50 to $14.50.
Competition among reinsurers has made it harder for the companies to increase the rates they charge primary carriers for backstop coverage, said Charles Sebaski, an analyst at BMO Capital Markets, in an interview today. That has pushed reinsurers like Axis Capital Holdings Ltd. and Arch Capital Group Ltd. to increase their focus on insurance, he said.
“The general conditions for pure-play reinsurance today are challenged,” Sebaski said. Managers of Bermuda-based Third Point Re are “not launching this into an improving operating environment. They are launching this into an overcapitalized underwriting environment.”
Third Point Re, which relies on Loeb’s Third Point LLC to oversee an investment portfolio valued at more than $900 million at midyear, will use proceeds from the IPO to boost underwriting capacity. Loeb’s money-management style sets Third Point Re apart from peers by diverging from the typical approach of investing mainly in fixed-income, the reinsurer said in regulatory filings.
About half of Third Point Re’s investments were in stocks and 40 percent were in bonds as of June 30, according to filings. Arch Capital, Endurance Specialty Holdings Ltd. and Axis, which Third Point Re names as competitors, hold most of their portfolios in fixed-maturity securities, filings show.
Greenlight Capital Re Ltd., the reinsurer that funnels its capital to David Einhorn’s Greenlight Capital Inc. hedge fund, holds about 1 percent of its investments in debt securities, according to filings.
Third Point Re posted $100.7 million in net income in the six months through June 30, compared with $99.4 million in all of 2012, as the reinsurer lowered its underwriting costs. The company spent about $1.08 on claims and expenses for every premium dollar it collected in the six months through June 30, down from $1.30 last year, filings show.
Affiliates of private-equity firms Kelso & Co. and Pine Brook Road Partners LLC have some of the largest Third Point Re stakes. Loeb was set to own about 8.5 percent after the offering. Neither Loeb nor the private-equity firms had planned to sell in the IPO.
According to the original offering terms, Third Point Re planned to sell a 22 percent stake, valuing the company at $1.4 billion at the midpoint.
JPMorgan Chase & Co., Credit Suisse Group AG, Morgan Stanley, Bank of America Corp. and Citigroup Inc. are among the banks that managed Third Point Re’s offering. The shares are listed on the New York Stock Exchange under the symbol TPRE.
With assistance from Noah Buhayar in New York. Editors: Julie Alnwick, Dan Kraut