Liberty’s Limestone Re sidecar said facing loss, possibly exhausted

by Artemis on November 10, 2017

According to a number of Artemis’ market sources, collateralized reinsurance sidecar losses following the recent hurricanes are beginning to come to light and we’re told to expect a significant hit to the Limestone Re sidecar, sponsored by insurance giant Liberty Mutual.

A number of sources have told us that Liberty Mutual’s recently launched reinsurance sidecar vehicle, Limestone Re Ltd., could be completely wiped out by the insurers losses due to the impacts of hurricanes Harvey, Irma and Maria.

Limestone Re is a $160 million fully collateralized and third-party investor backed sidecar, that Liberty Mutual launched at the end of 2016. The insurer ceded a portfolio of U.S. property catastrophe, U.S. homeowners and London Market specialty insurance risks to Limestone Re under a multi-year collateralized reinsurance transaction.

Liberty Mutual announced a pre-tax and after reinsurance loss from third-quarter catastrophe events of $1.785 billion, a significant hit and a figure that came down to $1.2 billion after tax but drove the company to a net loss of –$665 million for the quarter.

Sources told us that the Limestone Re is part of the reinsurance support that has helped Liberty Mutual to reduce its losses from the hurricanes. The insurer hasn’t revealed a gross loss estimate that we’ve seen, but it’s thought to be significantly higher as the insurer utilised reinsurance from a number of sources.

We’re told that the Limestone Re vehicle attaches at somewhere around the $1 billion to $1.3 billion of losses to Liberty Mutual.

With the insurer having reported its pre-tax catastrophe loss after reinsurance as being $1.785 billion, it seems safe to assume that Limestone Re has faced at least some level of loss following the hurricanes.

In fact, a number of our sources said that the vehicle could have been exhausted by the hurricane losses, with investors losing all of their principal as the gross loss may have stretched high enough to wipe out the current Limestone Re transaction.

We can’t confirm this loss, we don’t have the definitive details on the layer that the Limestone Re transaction covers, but it was always assumed that re/insurer owned sidecars would provide a significant level of support following recent catastrophe events and this information has now come from a number of sources on different sides of the ILS and reinsurance market.

It’s also possible that, if the Limestone Re sidecar hasn’t been exhausted already, it could face some losses from the California wildfires as well. Liberty has a reasonable exposure to the wildfires in California, which now look set to result in an industry loss of around $8 billion, and the sidecar may cover a portion of its losses from this event.

Sidecars are designed to support their sponsors with an efficient, third-party investor backed source of reinsurance or retrocession protection, fully-collateralized for security and designed to payout when the sponsor needs. In the case of Liberty Mutual, if the Limestone Re vehicle has indeed faced significant losses, it is simply a case of this sidecar doing precisely what it was structured to.

We’d anticipate many more of the collateralized reinsurance and retro sidecars in the market facing some level of losses from recent events, with a few potentially wiped out.

We’ll update you if in the future we can confirm on the size of the Limestone Re loss, or indeed if it transpires that it has escaped losses.

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