Seeking Alpha
IPOdesktop, IPOpremium (436 clicks)
Value, IPOs, long only
Profile| Send Message| ()  

Based in Bermuda, Third Point Reinsurance Ltd. (TPRE) 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.

Three other IPOs were scheduled for the week of August 12. The full IPO calendar can be found at IPOpremium.

  • S-1 filed August 5, 2013
  • Manager, Joint Managers: JPMorgan; Credit Suisse; Morgan Stanley; BofA Merrill; Citigroup
  • Co-Managers: Aon Benfield Securities; Dowling & Partners; Keefe, Bruyette & Woods (A Stifel Company); Macquarie Capital; Sandler O'Neill + Partners

Summary

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

Because TPRE 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 million. In July TPRE 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). TPRE's combined ratio for the six months ended June 2013 is 108%. All of TPRE'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 TPRE's IPO. The hedge fund's manager is also a shareholder of TPRE.

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing June 6 mos '13

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Third Point Reinsuranee 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 TPRE, which begs the question of whether those outsized investment profits were "manufactured" to help the IPO.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

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

Substantially all of TPRE'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.

TPRE 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

TPRE'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

TPRE'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, TPRE 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

TPRE expects to net $267 million from its IPO.

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

Disclaimer: This TRPE IPO report is based on a reading and analysis of TPRE's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Third Point Reinsurance