Aspen launches Silverton Re, collateralized quota share sidecar

by Artemis on December 2, 2013

Aspen Capital Markets, the third-party capital and insurance-linked securities (ILS) focused division of Aspen Re, has launched its first vehicle today, Silverton Re, through which it will give investors access to the returns of its catastrophe reinsurance business.

Silverton Re, a Bermuda domiciled special purpose insurer (SPI) has been formed by Aspen to provide it with a source of additional fully-collateralized capacity for its reinsurance underwriting business. Silverton Re, which is effectively a sidecar, launches with an initial capitalisation of $65m, the majority of which has been raised from third-party investors while $15m has been seeded by Aspen Re itself.

Brian Tobben, Managing Director of Aspen Capital Markets, commented on the launch; “This is an important step as we develop our capabilities in the alternative reinsurance market. Our objective is to partner with the capital markets so that we are able to provide investors with access to diversified natural catastrophe risk backed by the distribution, underwriting, analysis and research expertise of Aspen Re.”

According to Aspen, Silverton Re will enter into a quota-share retrocessional reinsurance agreement with Aspen, which will see it reinsure a proportion of Aspen’s globally diversified property catastrophe excess of loss business.

This is a traditional quota-share sidecar approach. Silverton Re investors will simply benefit from a share of the returns of Aspen’s catastrophe reinsurance book of business. This removes the important issues of risk selection and conflict of interest, which some reinsurers face when establishing third-party capital businesses with the intent to more actively manage and underwrite new business.

James Few, Chief Executive Officer of Aspen Re, said; “When we established Aspen Capital Markets earlier this year, our focus was to develop alternative reinsurance structures to leverage our existing underwriting franchise, increase our operational flexibility in the capital markets and develop strong partnerships with new investors. Establishing Silverton Re is the starting point for this strategy and we are excited by the partnerships we are building.”

Silverton Re is a sensible first step into third-party capital management for Aspen. Rather than attempting to launch a vehicle with a wholly separate book of business, Silverton Re will help Aspen build confidence among investors and get their name out into the third-party capital space without as much overhead as some ventures carry.

With property catastrophe reinsurance rates slated to decline further at the January renewals it is may also be a case that Aspen is waiting to see what happens next in that market. A quota-share sidecar is a simpler solution to begin getting third-party capital onboard and allow some investors to benefit from the returns of its reinsurance book.

Investors appreciate this quota-share sidecar approach as they can benefit from the risk selection skills of Aspen Re’s core team, safe in the knowledge that the returns an investment in Silverton Re makes will be strongly aligned with the returns that Aspen itself enjoys from the property catastrophe reinsurance business.

Aon Benfield Securities acted as placement agent for the Silverton Re launch.

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