Stone Ridge, the New York based alternative risk premia focused investment management group, has executed on a $1.2 billion adverse development reinsurance cover for global re/insurer Everest Group.
Longtail Re, as a reinsurer with a growing stature in the market operates differentiated strategies, on the capital inwards side being backed at least in part via private investor funds, as well as in its asset management approach for the ongoing management of assets related to the business assumed.
Stone Ridge utilises private capital alongside its underwriting and investment acumen to provide large-scale solutions to the casualty and longer-tailed insurance and reinsurance market through Longtail Re.
This adverse development cover reinsurance agreement provides $1.2 billion of gross limit cover for future adverse reserve development that arises from substantially all of the insurance policies written by Everest Insurance’s North American business for accident years 2024 and prior, the announcement states.
In this case Everest is set to retain sole authority to handle and resolve claims on the subject business.
“The transaction is a decisive step in strengthening our reserves and insulating our US Casualty insurance portfolio from further potential reserve development,” explained Jim Williamson, Everest President and Chief Executive Officer.
“We are pleased to be working with long-time partner Stone Ridge to enhance our risk capacity, optimize capital efficiency and deliver greater value to our clients and shareholders.”
The ADC reinsurance arrangement comes in two layers and is set to be accounted for by Everest as a retroactive reinsurance agreement.
The first layer is $700 million in size and covers development in excess of the $5.4 billion of Everest’s North America Insurance and Other segment liability subject reserves. Everest is set to transfer $1.25 billion of in-the-money reserves to Longtail Re in consideration upon closing of the transaction, the company explained.
The second layer is $500 million in coverage size and Everest will pay approximately $122 million of consideration upon closing, which the re/insurer said will be reported as an incurred loss during the fourth quarter of this year.
Everest also said that it will have a co-participation of $100 million in each of the ADC layers.
The transaction demonstrates the growing stature and traction that Stone Ridge has achieved with its Longtail Re platform, providing a meaningful solution to help a major re/insurer in managing its back-book years of underwriting and optimising its capital base.
It shows the Longtail Re team putting capital to work in supporting longer-tailed risk using its blend of private capital and asset management expertise, sourcing risks it finds attractive and growing its premium base considerably.
Reinsurance broker Gallagher Re acted as sole structuring agent and advisor for the transaction.
As well as this ADC arrangement, Everest has also announced an agreement to sell the renewal rights for its Global Retail Commercial Insurance business to global insurance giant AIG.
The company said this sharpens “Everest’s focus on its core global Reinsurance business as well as its Global Wholesale and Specialty Insurance businesses, and positions Everest for strong performance across market cycles.”
AIG will take on the rights to renew Everest’s U.S., U.K., European, and Asia Pacific Commercial Retail businesses, totalling an estimated $2 billion of aggregate gross premiums written.
“Everest has taken decisive steps to define its strategic direction and position the company for improved performance. The renewal rights transaction of our retail commercial insurance business and establishment of an adverse development cover are the outcomes of a careful strategic review of the company,” CEO Jim Williamson further explained. “These actions will provide meaningful flexibility to deploy capital toward share repurchases, strategic opportunities, and selective investments in talent, technology, and data that will enhance our competitive edge. The go-forward Everest is a more focused, higher-return enterprise anchored in Reinsurance and Wholesale & Specialty Insurance, built on underwriting excellence, balance sheet strength, and disciplined execution.”
