Watford Re, the investment-oriented or hedge fund, hybrid strategy reinsurance joint venture vehicle operated by Bermudian re/insurance group Arch Capital alongside asset manager Highbridge Principal Strategies, is branching out into motor insurance it would seem.
Watford Insurance Company Europe Limited has been established in Gibraltar as a subsidiary to the hedge fund style reinsurer Watford Re. Arch Underwriters Ltd. is set to act as the underwriting manager for Watford Insurance Company Europe, as it does for its parent Watford Re.
Watford Re underwrites largely casualty type risks, seeking to gain longer duration float that is then invested by Highbridge Principal Strategies. In this way it adopts a strategy like the hedge fund backed reinsurance firms, but is also capitalised by third-party investors so has added to the alternative capital build-up in the reinsurance space.
We understand that Watford Insurance Company Europe is going to underwrite UK motor insurance business, a typical line of business for insurers established in Gibraltar, as one of the avenues it pursues.
Watford Insurance Company Europe is permitted to underwrite business in both the UK and France. In the UK it can underwrite land vehicle cover and motor liability, in France property damage, fire and natural forces and general liability business.
Watford Insurance Company Europe is listed as an underwriter on a number of UK motor insurance broker and agent websites for policies for private motor vehicles.
It’s an interesting step for Arch and Highbridge with its Watford Re platform, as personal lines motor cover is not typically the type of business one would expect an investment oriented or focused re/insurance venture to target. However motor insurance is a good way to build float assets quickly, particularly if as an efficient underwriting vehicle Watford Insurance Company Europe can be very competitive on price.
A.M. Best said today that it has assigned a financial strength rating of A- (Excellent) and an issuer credit rating of “a-” to Watford Insurance Company Europe Limited.
The ratings agency said it bases its assessment on the company’s “strong risk-adjusted capitalization;
experienced underwriting partner led by Arch Underwriters Ltd., a wholly owned subsidiary of Arch Capital Group Ltd.; leading investment acumen of Highbridge Principal Strategies, LLC (HPS); and WICE’s particular component of Watford Re Ltd.’s broad-based business plan.”
A.M. Best said that it does believe that “the underwriting risk coupled with the alternative investment strategy creates an elevated risk profile that could expose WICE on the asset and liability sides of the balance sheet. However, the skilled underwriting of Arch Capital Group Ltd. coupled with the experienced investment acumen of HPS will help manage these risks.”
Previously the insurer was named Welwyn Insurance Company Limited, suggesting that Arch has purchased a shell company in Gibraltar and changed the name.
The set up of this Gibraltar insurer vehicle shows that Arch is serious about growing Watford Re into a meaningful platform, aiming to deliver both underwriting and investment return. It will be interesting to see what the company does underwrite, whether purely motor business or a broader range of lines.