Tailwinds emerging at Elementum: White Mountains CEO Rountree

Following a number of challenging years for insurance-linked securities (ILS) managers, current market conditions now look more positive, which has led White Mountains CEO Manning Rountree to explain of the ILS manager it has an ownership stake in, Elementum Advisors, that “tailwinds” are now emerging.

The White Mountains CEO is much more positive on the outlook for ILS investing in 2023, given the improved reinsurance rate environment, as well as the improvements seen in terms and structures, it seems.

His firm has demonstrated its appetite for deploying more capital to ILS or reinsurance-linked investments in the last year, becoming the lead investor behind its subsidiary Ark Insurance Holdings’ $250 million collateralized reinsurance sidecar Outrigger Re Ltd.

With Elementum, White Mountains has an ownership stake in a leading ILS fund manager, that operates across the collateralized reinsurance and catastrophe bond space.

But this investment was made in 2019, when White Mountains paid $55 million for a 30% stake in Elementum, which valued the ILS fund manager at roughly $183 million. White Mountains invested a further $2 million in the ILS manager in 2021.

That wasn’t the easiest time to take a stake in an ILS manager, as the ILS space was still reeling after 2017 and 2018 losses, with more to come.

But now, Rountree seems positive on the opportunity for Elementum.

He commented recently, “Elementum had a tough year: fund returns were modestly negative, nicked by Hurricane Ian losses, and both AUM and EBITDA declined year over year.”

But added that, “The silver lining: current conditions for ILS investing are highly favorable.”

He continued to explain that, “We see headwinds receding and tailwinds emerging at Elementum.”

As the heavy loss years move increasingly into the past, while rates have moved higher and terms been negotiated more favourably, ILS strategies are looking appealing again to many investors, which bodes well for managers through the coming years.

Of course, it’s going to be critical that gains, in terms of higher pricing and stricter terms, are held, at least sufficiently to enable the sector to deliver profits in all but the most disastrous of years.

In 2022, White Mountains investments into the Elementum ILS funds have returned flat, while the group made a 4.9% equity portfolio return from them.

The carrying value of the Elementum investment continues to be marked at $30 million, as of the end of last year, down from $45 million a year earlier.

Finally, the carrying value of the ILS fund investments in Elementum strategies were booked at a value of $49.3 million at the end of 2022, down from $51.9 million a year earlier.

As we reported in February, Elementum Advisors is set to benefit from a further $100 million investment into its range of ILS funds from White Mountains.

$70 million of this new investment from White Mountains has been funded and we understand gone to strategies as of the start of this year, with the remainder likely being held to see what the mid-year opportunity looks like.

2023 sees White Mountains with now almost $120 million invested in ILS funds managed by Elementum, which is set to reach close to $150 million if and when the remainder is deployed.

Alongside the $205 million commitment it made to Ark’s Outrigger sidecar vehicle, White Mountains is now a considerable investor in the space, showing its commitment to its companies and appetite to help drive their growth, while sourcing returns from the reinsurance market.

Should the ILS market conditions tailwinds now behind Elementum blow strong enough, we could see the part-owner demonstrating further commitment, to help the manager in maximising the current opportunities it sees.