Recently launched, hybrid-strategy reinsurance company Watford Re has begun operations in the first quarter of 2014 with an expected sidecar-style transaction as part-owners Arch Capital Group ceded $32.2m of premiums written to the reinsurer.
Watford Re’s hybrid strategy involves an approach of leveraging third-party capital, while having the ability to act as a type of sidecar for part-owners Arch Capital, while on Watford Re’s asset side it takes an active, hedge fund style, investment strategy thanks to asset manager Highbridge Principal Strategies.
Watford Re will begin to underwrite its own reinsurance business in the coming quarters, but it was always going to get its swiftest start as a sidecar type vehicle. According to Arch’s results Watford Re’s first deal involved taking business from Arch in a reinsurance transaction, which likely works out as very cost efficient for Arch and gives Watford some premiums with which to begin its investment activities as well.
In its first quarter results, which were published yesterday, Arch Capital said that Watford Re is expected to become fully operational in the second quarter of 2014. With just the reinsurance cession under its belt in the first quarter, Arch said that Watford Re’s net impact on its financial results was negligible so far.
Watford Re raised $1.13 billion of capital largely from third-party investors, split as $907 million of common equity, which includes $100m that Arch has invested in the new firm, and $226 million in preference shares.
Arch Capital is contracted to act as Watford Re’s underwriting manager while J.P. Morgan subsidiary Highbridge Principal Strategies is engaged as the firms investment manager.
Other recent Watford Re coverage:
– Investors receptive to creative structure of Watford Re: CEO.
– Watford Re, and start-ups, a blank canvas for reinsurance innovation
– Watford Re raises $1.13 billion for diversified reinsurance operations
– Watford Re, not your typical third-party reinsurance capital play
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