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Securities and Exchange Commission 100 F Street NE Washington, DC 20549 Norm Champ Director Division of Investment Management U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: Third Point Reinsurance Company Initial Public Offering Dear Mr. Higgins and Mr. Champ: I am writing to ask the U.S. Securities and Exchange Commission (the “SEC” or “Commission”) to consider whether Third Point Reinsurance Ltd. (“Third Point Re”) should be registered as an investment company subject to the Investment Company Act of 1940 (the “1940 Act”). Incorporated in Bermuda in 2011 as a reinsurance company, Third Point Re filed its first preliminary registration statement with the Commission on July 15, 2013. For the reasons set forth in this letter, we believe that Third Point Re should be classified as an “inadvertent” investment company within the meaning of Section 3(a)(1)(C) of the 1940 Act. Under the 1940 Act, a company must register with the Commission as an investment company if it holds investment securities in excess of 40 percent of its value
August 12, 2013 Page Two (exclusive of government securities and cash items) on an unconsolidated basis.1 SEC Rule 3a-6 provides that foreign insurance companies will not be considered “investment companies” under the 1940 Act, as long as (i) they are regulated as an insurance company in their home country; (ii) “engaged primarily and predominantly” in writing insurance or reinsuring insurance companies’ risks; and (iii) that the company is “not operated for the purpose of evading” the 1940 Act. 2 In re Tonopah Mining Co. sets forth the Commission’s longstanding test for whether a company is primarily engaged in the business of an investment company: “The principal relevant considerations are 1) the company's historical development; 2) its public representations of policy; 3) the activities of its officers and directors; and, most important, 4) the nature of its present assets; and 5) the sources of its present income.”3 The Seventh Circuit Court of Appeals interpreted Tonopah to require that a “reasonable investor” would perceive the company in question to be in fact an investment company.4 In our view, Third Point Re does not qualify for the exemption provided for by Rule 3a-6 of the 1940 Act because it is not engaged “primarily and predominantly” in the business of reinsurance. Rather, we believe that Third Point Re’s primary business activity is more accurately characterized as investing in hedge funds managed by Third Point LLC. Third Point LLC is a New York based hedge fund manager and SEC registered investment advisor. For the reasons discussed below, it is our opinion that reasonable investors may conclude that investing in Third Point Re is equivalent to investing in hedge funds managed by Third Point LLC. Third Point Re’s history, policies, and management are inextricably linked to Third Point LLC and its founder and CEO, Daniel Loeb. Third Point Re officially started reinsurance operations on January 1, 2012.5 It was capitalized by a consortium of investors, including various entities affiliated with Mr. Loeb that presently own 10.8 percent of Third Point Re’s common stock.6 Mr. Loeb served as a director of Third Point Re until May 2013, and as one of the company’s founders he continues to have the right
15 USC § 80a–3(a)(1). 17 CFR 270.3a-6(b)(3). 3 In re Tonopah Mining Co., 26 S.E.C. 426, 427 (1947). 4 SEC v. Nat'l Presto Indus., 486 F.3d 305, 314 (7th Cir. 2007). 5 Third Point Reinsurance Ltd., Registration Statement (Amendment No. 3 to Form S-1) at 1 (Aug. 5, 2013). 6 Id. at 8-9.
August 12, 2013 Page Three to approve significant corporate actions (including any change in strategic direction) under Third Point Re’s agreement among members.7 Third Point Re’s business model involves “combining profitable reinsurance underwriting with superior investment management provided by Third Point LLC, our investment manager.”8 Third Point Re’s investable assets are managed exclusively by Third Point LLC pursuant to a long term management agreement. Third Point LLC manages Third Point Re’s assets “on substantially the same basis as its main hedge funds, including Third Point Partners L.P., the original Third Point LLC h edge fund.”9 The agreement extends through December 2016 and can only be cancelled if Third Point LLC engages in certain egregious activities such as fraud.10 Third Point Re appears to have substantially more than 40 percent of its total assets invested in securities managed by Third Point LLC. Excluding cash and cash equivalents, total 2012 year-end assets were valued at $1.29 billion, 73% of which comprise of “total investments in securities and commodities.”11 By mid-year of 2013, assets excluding cash and cash equivalents were $1.44 billion, 65 percent of which are ‘total investments in securities and commodities.”12 Nearly all of Third Point Re’s asset portfolio appears to be invested in securities rather than commodities. 13 The majority of Third Point Re’s present income is derived from the performance of its investment portfolio that is managed by Third Point LLC. In 2012, Third Point Re reported $136 million in net investment income compared to $96 million in net premiums earned from its reinsurance business.14 For the six months ended June 30, 2013, Third Point Re reported net investment income of $113 million compared with $96 million in net premiums earned. 15 While insurance companies often have significant investment income, it is not common for insurance companies to have their investment income attributable to the performance of a single hedge fund manager.
Third Point Reinsurance Ltd., Registration Statement (Form S-1) at Exhibit 4.8 (Jul. 15, 2013). Third Point Reinsurance Ltd., Registration Statement supra at 1. 9 Id. 10 Id. at 29. 11 Third Point Reinsurance Ltd., Registration Statement supra at F-2; Cash and cash equivalents have been excluded from both the calculation of total assets and investments in securities. See, SEC v Fifth Avenue Coach Lines, Inc., 289 F. Supp. 3, 31 (S. D. N.Y. 1968)( “The problem as to assets involves the interpretation of the phrase ‘government securities and cash items’ which the statute requires to be excluded from total assets for the purpose of this computation.”). 12 Third Point Reinsurance Ltd., Registration Statement supra at F-2. 13 Id. at 122. 14 Id. at 12. 15 Id.
August 12, 2013 Page Four Finally, we believe that reasonable investors will conclude that investing in Third Point Re is synonymous with investing in an investment company that is managed by Third Point LLC. Not only does Third Point Re share its name with Third Point LLC, but its investment assets and investment income are managed by and derived from Third Point LLC’s exclusive investment management agreement. We note that the percentage of Third Point Re’s investments in securities exceed the 45 percent safe harbor levels for total assets and income sources that have been established by Rule 3a-1 to avoid being classified as a prima facie investment company. For these reasons, we respectfully request that the Commission’s Division of Corporate Finance and Investment Management examine whether Third Point Re should be required to register as an investment company under the 1940 Act. Based on the analysis above, we believe that Third Point Re should not be permitted to rely on the Rule 3a-6 exemption to the 1940 Act. Instead, Third Point Re should be required to either register with the Commission as an investment company under the 1940 Act, or to formally apply for an exemptive order under section 3(b)(2) or section 6(c) of the 1940 Act. We appreciate the opportunity to comment on this matter. If you have questions or seek additional input, please contact Heather Slavkin Corzo at (202) 637-3900. Sincerely,
Brandon J. Rees Acting Director Office of Investment cc: Chairman Mary Jo White Commissioner Luis A. Aguilar Commissioner Daniel M. Gallagher Commissioner Kara M. Stein
BJR/sdw opeiu #2, afl-cio
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