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Tower Group International, Ltd. Message Board

  • dumbandreallyslow dumbandreallyslow Sep 30, 2013 1:06 PM Flag

    Joint underwriting pools increase downside risk I think

    Had a question someone might help me answer. Are intercompany underwriting pools another form of self reinsurance? If so, doesn't that increase the inherent leverage of the situation?

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    • Does not increase the amount of leverage -- it all washes out in the consolidation. Basically, the company has set up the pool to allow its smaller units to write more insurance, that is ceded to the larger units (in effect crimping the larger unit's ability to write more outside business) and at the same time allowing one unit that lacks a particular license to participate in profitable business written by a unit that does have the license.

    • Did some more work on this and valuation took a big haircut that I bailed on my long position. I found they were doing a lot of the reinsuring themselves through an affiliate Castlepoint Reinsurance; about $900mm of their $1.7bn reinsurance recoverable is through an intercompany underwriting pool. This amount is not disclosed in the SEC filing but in the statutory filing in one line item. If you look at the 2012 schedule F for Tower Combined & Affiliates it shows they have a significant amount - about $921.319mm (bottom left pg 22) reinsurance recoverable from Castlepoint Reinsurance; it's the majority of the $1.7bn of all of Tower Group's reinsurance recoverable in column 15. Thoughts?

      • 2 Replies to dumbandreallyslow
      • MAY 28, 2013 PCS stays at $18.75 billion industry loss estimate on hurricane Sandy

        The latest re-survey of hurricane Sandy insurance industry loss estimates has now been completed and published by Property Claim Services (PCS). The loss estimate for Sandy has not changed after this re-survey, it remains at $18.75 billion, and PCS told us that it is going to perform another re-survey in 60 days time to ensure that the loss estimate is accurate and reliable.

        Looks good for TWGP, per a reputable third party. Final claims for Sandy could be higher than even last PCS estimate in 2013 and yet manageable.. (Forced) Liquidating assests at far less than fire sale prices was the issue I was most worried about.

        Enstar and Catalina could provide a liquidity bridge and allows selling assets to raise cash. Or, just a buyout?

      • Donedooit has it right on the reasoning behind intracompany reinsurance pools. It also does wash out in the consolidation but it also negates a critical reason for buying reinsurance and that is to shift part of the risk to another party.

        Having it reinsured internally doesn't do that and creates frictional costs that "benefit" the overall company (ceded reinsurance commissions, front fees etc) but does nothing to transfer risk. In a case where the entire company is in capital peril, it closes off an additional option for recapitalization as the reinsurance recoverable, which would normally flow from an unrelated, hopefully solvent, counterparty now has to come from the same corporate pot.

        Unless, CastlePoint is completely separately capitalized and charged sufficient premium for the reinsurance of Tower's business, this just compounds the problem.

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