Third Point launches Malibu Life Re, a hybrid life & annuity sidecar-like structure

Daniel Loeb’s Third Point LLC has returned to the reinsurance market, but this time with a focus on the asset intensive life and annuity reinsurance space, launching a new company, Malibu Life Re, that will operate as a hybrid sidecar-like structure to begin, but with a strategy to expand and become market-facing to transact with multiple counterparts.

Loeb’s alternative asset manager Third Point LLC has launched Malibu Life Reinsurance SPC (Malibu Life Re), a licensed Class B(iii) life and annuity reinsurer based in the Cayman Islands.

Malibu Life Re is owned by Third Point and certain affiliates and Third Point will also be an investment manager to it, although importantly not through its hedge fund strategies and not the only asset manager.

Malibu Life Re will adopt a more traditional investment policy, with Third Point LLC leveraging its expertise in credit investments, while the majority of the new life and annuity reinsurers assets will be managed by a major investment firm, in the more typical liquid assets including treasuries and the like.

So, this is not a hedge fund reinsurer, or total-return play, although of course for Third Point part of the attraction to reinsurance is the ability to build up significant assets to manage and in life and annuity risk, with the way Malibu Life Re is structured, that could be meaningful from the off.

Malibu Life Re has entered into a quota share arrangement with a major U.S. annuity provider, to reinsure $3 billion of annuity products.

We’re told this book is expected to deliver accretive profits from day one, with retained profits, cash generation and assets expected from it.

Dan Loeb’s Third Point LLC will provide investment management services, tapping into the firm’s ability to “source excess spread across the full spectrum of credit asset classes,” the company explained.

The asset managers portfolio management capabilities will also be tapped, to “construct capital efficient and diversified portfolios comprised of both in-house and other best-in-class asset manager strategies,” with around two-thirds of the Malibu Life Re asset management set to be outsourced, we understand.

In addition, Third Point will provide other “strategic services” including corporate development, risk management and asset liability management, where Third Point will use its analytics to develop bespoke, liability-driven investment programs for Malibu Life Re.

For Third Point, launching Malibu Life Re is primarily a play to earn a return on its investment in the reinsurer, by building out a leading life and annuity specialist firm that it has stood up with its own money.

But another benefit includes the asset side, with the potential for significant assets under management to flow to certain Third Point strategies from Malibu Life Re.

Strategically, while Malibu Life Re has begun life with a single quota share with a single annuity specialist, like a life and annuity sidecar, the goal is to expand that and bring on additional counterparties and scale the business to be market facing.

The company explained that, “Malibu Life Re intends to scale through select partnerships with insurers providing flow and/or block reinsurance.”

Third Point LLC Founder and CEO, Daniel S. Loeb, explained, “We are excited to form Malibu Life Re to provide attractive capital solutions in the life and annuity space in partnership with leading insurers. We expect that the nimble, multi-asset class investment strategy we have designed over almost thirty years can be leveraged to deliver favorable long-term risk adjusted returns for Malibu Life Re’s clients and partners.”

It’s just the latest example of how attractive the life and annuity reinsurance space is to asset managers and another example of a hybrid structure to deliver capital to that sector, building book-value in the reinsurance vehicle for the investors backing it and sourcing asset management float at the same time.

We understand that, as Malibu Life Re scales, Third Point may consider introducing additional capital providers to it in time, if it can help to scale the structure more quickly or effectively. Although we also understand Third Point’s own capital is more than sufficient to grow Malibu Life Re organically over time.

We’re seeing third-party capital entering the life and annuity space in a number of ways now, as longer-standing participants look to add efficiency to their business models and external investors find ways and structures they can access the returns of that business (and its investment float) through.

Ultimately, what all these efforts do is bring efficient capital and add layers of efficiency onto the business model of the industry, given the fact capital from alternative sources can have a different return requirement and the added leverage from investment strategies can ultimately lower the cost of that capital as well.

Find details of numerous reinsurance sidecar investments and transactions, including life reinsurance sidecar structures, in our directory of collateralized reinsurance sidecar transactions.