Bermuda's insurers have revealed various terms and conditions attached to outsourcing of investment duties to independent managers.
Watford Re, a multi-line reinsurer part-owned by Arch Capital, has divulged the basis on which high-yield and some of its investment-grade mandates are remunerated.
The sub-investment grade work pays Watford's chosen manager performance fees worth 10% of the income, plus 25% of excess income after a 10% net return goes to Watford. But the total incentive fees are capped at 17.5% of the aggregate income.
In 2020, Watford Re acknowledged paying $28.3m of total investment fees to related parties, down from $29.5m in 2019, on total investments worth $2.5bn (2019: $2.7bn). In 2020 over half (57.4%) of the total investment fees were linked to the manager's performance, compared to 41% in 2019.
Watford Re described the performance fee arrangement as allowing its investment managers to "participate in the favorable results of the company in the form of performance fees".
For the chief manager Watford Re pays a 1% base fee for the opening $1.5bn managed, then 0.75% on the rest, payable quarterly. The performance fee, as detailed above, is subject to a 'high watermark', meaning the manager must make good any losses before earning it again.
Watford Re engages the manager by investing in a limited partnership of which the manager is the general partner.
Details of investment outsourcing, including managers used and mandate terms, of more than 100 Bermudian re/insurers are in Insurance Risk Data's inaugural research report on outsourcing in Bermuda. The research report, across more than 100 pages and 70 exhibits, includes chapters dedicated to ESG and net zero investing, captive insurers and outsourcing trends. For further details contact phil.manley@fieldgibsonmedia.com.