Lancashire to launch $250m Saltire Re I collateralised sidecar facility

Lancashire Holdings, a Bermuda and UK based provider of specialty insurance and reinsurance products,has announced that it is launching Saltire Re I, a fully collateralised Bermuda incorporated special purpose reinsurer. Saltire Re I will be collateralised through share capital which will be owned by a syndicate of investors and aims to be capitalised to the tune of $250m. Lancashire themselves are to invest $33m in this first Saltire Re sidecar vehicle.

With this launch Lancashire are targeting the January renewals, aiming to bring investor capital to their underwriting and giving Lancashire a new source of underwriting fee income. It’s timely, as the interest in reinsurance is high from institutional investors and the broader capital markets, so we don’t suppose Lancashire will have too much difficulty raising the $250m of capacity.

According to Lancashire, Saltire Re I will underwrite a combined exposure ultimate net loss aggregate reinsurance product for the January 2013 reinsurance renewal season. That too should be popular with the focus on aggregate protections at the moment. It seems Lancashire have been listening to market trends and with this smart move are the first to come forwards with a fully collateralised reinsurance product like this specifically for the January renewals.

Lancashire have also launched a management company who will help manage and administer the Saltire Re I sidecar facility. Saltire Management Limited is wholly owned by Lancashire and will provide underwriting services to Saltire Re I.

Richard Brindle the Group Chief Executive Officer of Lancashire said; “The formation of Saltire Re I and Saltire Management marks an exciting new chapter in Lancashire’s story. Following the successful launch of the Accordion sidecar in 2011, the creation of the Saltire vehicles represents a further development of Lancashire’s strategy to build partnerships with capital market participants. It affords the investors in Saltire Re I access to Lancashire’s underwriting expertise, and allows Lancashire the ability to generate fee income. We have listened to our clients and brokers and believe that there will be an appetite for the Saltire Re I product.”

Elaine Whelan the Chief Financial Officer of Lancashire commented; “The Saltire model will be capable of replication and should prove attractive to both investors and clients in the future as opportunities arise. It will give Lancashire the opportunity to leverage its underwriting expertise whilst affording flexibility in the management and deployment of its own capital.”

This is another great example of the capital markets and investor capital helping a reinsurer adopt an agile approach to underwriting through a facility which can be repeated year after year if required, targeting the major reinsurance renewal periods. The additional underwriting fee income generated by vehicles like Saltire Re will be a welcome addition to Lancashire’s bottom line.

All of the reinsurance contracts underwritten by Saltire Re I will be collateralised for the benefit of its reinsured customers to the full extent of Saltire Re I’s potential policy liability, according to the announcement. Both Saltire Re I and Saltire Management have been authorised by the Bermuda Monetary Authority.