Aspen to switch quota shares from Silverton to Peregrine

Bermudian insurance, reinsurance and growing third-party capital manager Aspen Insurance Holdings Limited, is changing the way it deals with sidecar style quota shares, which will see it stop using its Silverton Re sidecar and moving quota share support to cells of its other vehicle Peregrine Re.

Aspen launched its Silverton Re fully-collateralized reinsurance sidecar back in 2014 and has renewed the sidecar each year since, up until its last renewal in December 2016.

But the firm has elected not to renew the Silverton Re sidecar in December 2017, for the 2018 underwriting year, as it has changed its strategy and instead will opt to utilise its other Bermuda based special purpose insurance vehicle instead, Peregrine Reinsurance Ltd.

Peregrine Re was set up as a Bermuda segregated accounts company in November 2016, as Aspen sought to expand the range of business it helped third-party investors gain exposure to. The idea was to utilise Peregrine Re to provide investors with returns from a broader range of risks than were accessible through the longer-standing Silverton Re collateralised sidecar.

But Aspen has now decided to stop using Silverton Re for its typical quota share arrangements and instead will utilise segregated cells of Peregrine Re to enable investors to access the risks that Silverton once played host to.

The transactions that Silverton Re entered into were designed to provide Aspen Re’s global property catastrophe excess of loss reinsurance business with capital markets support, but Aspen said that it has not renewed Silverton Re in late 2017.

That is despite the fact CEO of Aspen Chris O’Kane had stated a desire to increase the size of Silverton Re in the future, back during the firms Q3 2017 earnings call.

The strategic aim, of continuing to expand its partnership with third-party capital, still stands we believe, but the method and vehicle for matching its risks with investor capital has now been changed.

Aspen said that in the future any quota share support for Aspen Re, such as Silverton was providing, will from now be provided by a separate cell of the Peregrine vehicle instead.

The reason for the change in vehicle and direction is likely down to efficiency of the structures involved and the fact ILS investors are largely comfortable with investing into segregated cells rather than a dedicated vehicle, hence the new focus on Peregrine Re as the structure to support Aspen’s main quota share with its third-party capital investors.

Aspen said it has increased its capacity thanks to the collateralized arrangements made through its Aspen Capital Markets team, which would include developments with Peregrine Re, as it increasingly provides investors with access to the returns of its underwriting business, while offering brokers and its clients enhanced capacity.

Investors in the Silverton Re sidecar have done very well in recent years, until the major losses of 2017 drove some impacts through to the collateralized arrangements the vehicle participated in.

In fact, Aspen notes that the fair value of Silverton Re loan notes declined by roughly $21 million after the 2017 catastrophe loss events, which is a fairly typical amount when compared to other similar quota share ILS strategy loss experience.

Also read: Aspen’s third-party capital AuM grew to $550 million in 2017.