Oxbridge Re has ambitions as “more of an asset manager” with new sidecar

by Artemis on August 15, 2018

Collateralized reinsurer Oxbridge Re Ltd. is looking to become more of an asset manager in the reinsurance space with its newly licensed Cayman Island’s sidecar vehicle, Oxbridge Re NS Ltd., according to its Chairman and Chief Executive Officer (CEO), Jay Madhu.

The reinsurer announced recently that its sidecar vehicle, Oxbridge Re NS, which was first registered in the Cayman Island’s in December 2017, is now licensed for business.

When questioned on the role and projections for its sidecar during the company’s second-quarter 2018 earnings call, Madhu told analysts that its first issuance of participating notes, the proceeds of which were then used to participate in underwritten reinsurance contracts, was a very small amount and was essentially a “toe in the water.”

“But what we wanted to make sure was to get all our licensing, proof of concept, and so on in order and then roll it out at a meaningful manner in the future.

“So, we started out with the first sidecar in the Cayman Islands. We got licensed, we raised the capital and we put it to work and the net result of that is, now we are taking less risk with Oxbridge Re capital. We are moving some of our risk into the sidecar and being more of an asset manager, if you would, in the reinsurance space,” said Madhu.

The Oxbridge Re NS sidecar essentially enables the reinsurer to access capital markets capacity in order to augment its underwriting structure, enabling diverse capital to come in more efficiently, with third-party investors able to invest in the notes the sidecar issues.

Madhu continued to explain that the firm sees the sidecar growing and becoming more influential and meaningful to Oxbridge Re moving forward, with part of its push in the sidecar space being driven by a lack of rate improvements following recent large losses.

“Initially, the expectation was that rates would rise substantially and that didn’t come through as much as we would have hoped. But nonetheless, several companies took some hits, including ours and what we are looking at doing is, saying, where does Oxbridge go from here?

“So, at this moment, we are looking at increasing our visibility in the sidecar business and that might not be a meaningful number at this time, but as we go forward, we will expand on that and duck, bob and weave as we go forward,” said Madhu.

Of course, another way the firm can bring in investor capital is through a public offering, but Madhu stressed that nothing of this nature is currently in the works, with the firm focused on the sidecar business, for the short-term at least.

Ultimately, this sidecar will enable Oxbridge Re to bring investor capital into the company much more swiftly and easily than running a new IPO or share offering, and it provides investors with a way to access the reinsurance underwriting returns, without any of the broader financial market correlations of an equity investment in the reinsurer.

Furthermore, the new sidecar means that Oxbridge Re has reduced the amount of its capital it’s deployed into reinsurance contracts, from its typical ~50%, to “significantly less than 50%.”

“However, we are still in the market with our own capital, but we are also in the market with the sidecars dollars,” said Madhu.

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