Collateralized reinsurer Southport Re to be sold to Lennox Investments

Private equity backed Cayman domiciled reinsurer Southport Re, which writes much of the reinsurance coverage it provides on a fully collateralized basis, is being acquired by financial services investors Lennox Investments LLC.

Reports out late yesterday and a statement from New York based Lennox Investment said that the firm has entered into a memorandum of understanding to acquire Southport Re (Cayman) Ltd., a Cayman Islands domiciled property and casualty reinsurance firm.

Southport Re is owned by Southport Lane Genesis L.P., which is part of private equity firm Southport Lane Management L.L.C. The reinsurer underwrote approximately $32m of gross premiums in 2013, according to the statement, primarily focusing on underwriting long-tail lines of property and casualty reinsurance.

Southport Re underwrites high-frequency, low-severity reinsurance business, primarily within the U.S. and Europe, predominantly on a fully-collateralized basis.

Lennox Investments said that it hopes to complete the acquisition by the end of the second quarter of 2014 and that it is pleased that its acquisiton plans are moving forward quickly.

It is interesting that Southport Lane is exiting its stake in the reinsurance business at a time when other private equity investors, hedge funds and investors such as pension funds, are all showing so much interest in the space. Accessing the returns of reinsurance business is becoming a staple for so many investors at this time so it is curious why Southport Lane has seemingly not found it such a profitable experience.

It may be related to an issue recently reported by the Insurance Insider which suggested that there were concerns in the reinsurance market over the collateral that Southport Re had been using to back-up its underwriting deals. The Insider said that Southport Re had stopped writing new business and that deals were being commuted as Southport Lane considered its strategic options, including a possible disposal of its reinsurance firm.

So with disposal now in progress, perhaps we might see Southport Lane show its clear interest in reinsurance in another form. It will be interesting to see whether the private equity manager might return to reinsurance through another start-up, perhaps in partnership with an established firm this time following a model that seems to be gaining some traction.