Catlin sets up new third-party capital reinsurance sidecar vehicle

by Artemis on February 10, 2014

Catlin, a global specialty property casualty insurance and reinsurance firm with a strong base at the Lloyd’s market in London, has launched a new collateralized reinsurance sidecar type vehicle, funded by third-parties, for the 2014 underwriting year.

The new sidecar type structure, which Catlin has termed a Portfolio Participation Vehicle (‘PPV’), gives third-party investor capital a way to access Catlin’s business that is underwritten outside Lloyd’s for the first time.

Catlin is no stranger to managing third-party reinsurance capital to give investors a way to participate in its business, having established three of strategic third-party capital arrangements in the form of special purpose syndicates operating at Lloyd’s of London before.

Those existing three Special Purpose Syndicates (‘SPS’) at Lloyd’s, in place since 2012, give Catlin’s Lloyd’s Syndicate whole-account quota-share reinsurance protection, backed by third-party capital.

The new Portfolio Participation Vehicle (‘PPV’) achieves a similar goal, providing fully-collateralised whole-account reinsurance protection for Catlin business which is underwritten outside of Lloyd’s.

Catlin has so far used third-party capital largely to increase its own underwriting capacity, by allowing alternative capital to participate in its business through taking quota-shares. In this way its three SPS’ and the new PPV all act in a similar way to a traditional sidecar.

Chief Executive Stephen Catlin said this morning; “We continually look at ways to increase the flexibility of our capital. We do this both through our corporate structure, which allows us to allocate capital efficiently and rapidly to areas of the business where it is best utilised, and also through our third-party capital programme.”

These four third-party capital facilities allow Catlin to flex its capital base, leveraging capital from third-parties such as institutional investors. They provide a low-cost source of reinsurance capital, which frees up some of its own rated capital for other purposes.

Stephen Catlin said that the new facility, the PPV, has been funded by several third-party capital providers.

In total, across the four third-party reinsurance capital facilities, Stephen Catlin said that the firm had raised nearly $300m from third-party investor sources for 2014.

Catlin recognises profits from managing the third-party capital, as well as benefitting from the ability to cede risk to the SPS’ and the new PPV. In 2013, the total commissions and fees from Catlin’s three SPS facilities amounted to $28m, double the $14m in 2012.

Catlin said that its third-party capital arrangements benefit it by; increasing book value through management fee income and commissions, giving it flexibility to adapt to changing market conditions or opportunities such as following a significant catastrophe event, reducing earnings volatility and providing it with more efficient capital.

Overall these third-party reinsurance capital activities increase the flexibility of Catlin’s capital structure and enhance its strategic options for when market conditions demand it.

Catlin said it would continue to search proactively for lower-cost sources of capital, including looking at additional potential third-party capital structures.

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