The Voice of Experience: Interview with John Berger

By: Bermuda Re

With the strength of investment manager Third Point LLC behind it and industry veteran John Berger at the helm, Third Point Re is starting to gain a secure footing in the reinsurance market. John Berger spoke to Bermuda:Re+ILS about his plans for the future.

Third Point Re may be just three years old but John Berger, its chief executive, says that he feels the reinsurer is already well established. Much of this is because the business has been built on individuals with great experience in the industry and excellent industry connections.

“It’s a business where relationships count for a lot, so although we were a new company, people like myself and the others who joined are very established in the business. We know a lot of companies and a lot of brokers,” Berger says.

“Relationships still count for a lot in this business and people call us up because they know us as individuals—we’ve done business with them in the past. Clearly there are deals we would like to do and relationships we are still working on but I think we have been very widely accepted in the marketplace very quickly.”

“THE COMBINATION OF THE ALTERNATIVE CAPITAL COMING INTO THE CAT SPACE AND THE FORMATION OF COMPANIES LIKE THIRD POINT RE CREATES VERY DRAMATIC CHANGES IN THE INDUSTRY.”

Third Point Re defines its reinsurance strategy as being “highly opportunistic and disciplined”. Another key differentiator is that substantially all of its investable assets are managed by its investment manager, Third Point LLC, which is wholly owned by Daniel Loeb, one of the company’s founding shareholders and a very well respected investment manager. Berger believes that the depth of knowledge and experience within Third Point LLC give Third Point Re an edge.

“We are a traditional reinsurance company that happens to have the advantage of the investing expertise of Third Point, so we’re well positioned in the market,” he says.

“We have three business segments. The first is traditional quota shares for small to medium size companies. This is the classic use of reinsurance as capital. The second segment is opportunistic and special situations. The last area is loss portfolio transfer opportunities.”

He adds that the investment advantage has become especially apparent when negotiating loss reserve deals in the renewal season—an area in which he believes Third Point Re can flourish.

“This is a segment we are very excited about and I think that having Third Point LLC as our investment manager does give us a competitive advantage. We have a good product to sell. The loss reserve space provides capital relief to companies; we can help people get a better yield on their investment income. That’s the area that I’m most hopeful for at year end.

“The loss reserve deals are perfect for us: where you have the underwriting/actuarial/claims experience and expertise to analyse the adequacy of the reserves, you can do a loss reserve deal on a longer tail casualty line and you’re going to hang on to the money for quite a while—so that is a terrific type of business for us.”

Berger says that the last few years have been an “interesting time” due to the influx of third party capital into the market.

“Buyers are probably better capitalised than ever before, and sellers are better capitalised than before, so we don’t see an outpouring of demand anywhere,” he says.

Adjusting to change

Berger has seen more change in the last 12 to 18 months than in his prior 30+ years in the business. “We’ve gone through cycles, liability crises, hurricanes, earthquakes and new companies formed—but they were always just regular companies,” he says.

“This time around the cat funds, and the pension funds are coming into the cat space. It is a really dramatic change.”

Now more than ever, he says, it is vital to be strong on both the investment side and the underwriting side of the business.

“I’m not comparing us with Berkshire Hathaway, but that’s what they do. I would put Berkley in that category too. Although it’s not a new model, it’s gaining a lot of press now because of explicitly hedge fund-related investments.

“We can compete with companies on business where they don’t have the investing advantage that we have. The combination of the alternative capital coming into the cat space and the formation of companies like Third Point Re creates very dramatic changes in the industry.”

Third Point Re’s opportunistic strategy seeks to identify areas of opportunity, which are often areas where other reinsurers would hold back.

“This accounts for about 35 percent of the total premium that we’ve written year to date, so it is substantial—it’s in areas where maybe everyone else is running away and we think there’s something there. We’ve written some regular contracts, regular straight quota shares of business where underlying rates and dynamics were improving, and that seems to be working well,” Berger says.

The company has the skills and flexibility to offer bespoke solutions. One recent example was where it helped a company with potential ratings difficulties, which had to reduce some premium.

“We worked out a deal to take the premium off their books and that worked well. We wish there were more opportunities out there but we’re pretty happy with the ones we’ve found.”

Berger believes that Third Point Re’s competitive advantage is sharpened by its relationship with its investment manager, Third Point LLC, and the investment return that Third Point LLC can generate for Third Point Re pursuant to the investment management agreement entered into between the parties.

“Most traditional companies are invested in short duration, high quality bonds and yields are low. You look at yields of some of the Lloyd’s operations and they are below 2 percent. That’s an area where we think we have a true competitive advantage.”

A relationship business

This advantage is all the more important in the current tough market where, Berger says, relationships are becoming almost as vital as underwriting when it comes to staying in business.

“Yes it’s tough, it’s very competitive. A lot of times it becomes more a game of access than underwriting—how well you know the people, how well you know the brokers, so that when you see a deal you like you can get on it.

“A LOT OF TIMES IT BECOMES MORE A GAME OF ACCESS THAN UNDERWRITING—HOW WELL YOU KNOW THE PEOPLE, HOW WELL YOU KNOW THE BROKERS.”

“Fortunately, we have a lot of very good relationships, so that piece is performing well. We have done well with our opportunistic approach—the special situations—and the loss reserve deals are very interesting; we’re optimistic about that, so despite a very competitive market we like the opportunities we are seeing.”

He adds that the firm is pleased to stay out of the property cat space. “That has got so much press, with the alternative capital coming in and the traditional companies defending their turf—that is a hyper competitive market and we’re not in that.”

He believes that the Third Point Re model, which echoes that of Green Light Re and Hamilton Re, is unlikely to become more widespread, but Berger does expect to see more big company sponsors of reinsurance companies, similar to the Watford Re–Arch relationship.

“We have recently seen the news on Allied World/Pine River and on Ace/BlackRock. I expect there will be more,” he says.

Meanwhile, Third Point Re will continue to build on the foothold it has already secured in the industry. Berger is setting his sights high.

“We want to be in the top 10 percent of companies, returns wise. We want to grow book value substantially and I want the people who work for us to be proud to represent us, so I want us to succeed on the numbers side and on the emotional side.”

John Berger, interview, Third Point Re, Third Point LLC, investment