Oxbridge Re wants sidecar upsize, investors still on track for ~36% returns

Cayman Islands based reinsurance company Oxbridge Re Ltd. is aiming to upsize its fully collateralized reinsurance sidecar vehicle Oxbridge Re NS Ltd. for the coming underwriting year from June 1st.

The sidecar’s current risk period that ends this month has been loss free it seems, with the investors backing the vehicle set to earn a return of approximately 36%, according to the company’s CEO.

Oxbridge Re Holdings President and Chief Executive Officer Jay Madhu explained, “Our sidecar investors are on track to earn an attractive return of approximately 36%, and we are looking to grow this portion of our business in the new treaty year beginning June 1, 2020. We remain optimistic about the long-term prospects of our reinsurance business as we continue to evaluate additional opportunities for growth as well as diversification of risk.”

Accessing sidecar and quota share capital is not set to be the easiest task at this renewal, with numerous in the market at this time we understand. But Oxbridge Re’s sidecar, being a small vehicle, will likely find it relatively easy to add some capacity for the 2020 treaty year, given the returns it has generated for its investors look very attractive.

The Oxbridge Re NS sidecar enters into a retrocessional quota share arrangement with parent Oxbridge Re, so sharing in any losses suffered.

In its first full-year the Oxbridge Re sponsored reinsurance sidecar vehicle faced a total loss, with participating investors who backed the $2 million sidecar issuance in June 2018 losing all of their investments when Oxbridge Re’s portfolio was hit particularly hard by catastrophe events in the second-half of 2018, with hurricane Michael and the California wildfires both eroding sidecar investor capital resulting in the vehicle facing a total loss.

Oxbridge Re then launched a second, smaller reinsurance sidecar transaction in June 2019, when the firm sponsored a $600,000 Oxbridge Re NS issuance.

That sidecar issuance ran clean through its first six months, the second-half of 2019, avoiding any losses from global catastrophe events such as the Japanese typhoons and hurricane Dorian.

The company then forecast possible circa 40% returns for its sidecar investors back in March, as the vehicle remained clean.

Now that forecast has dropped slightly, down to circa 36%, for investors in the Oxbridge Re NS 2019-1 reinsurance sidecar issuance, a healthy return on their investment.

Distributions of returns earned continued in the last period and $66,000 of income was attributable to the participating note investors in the Oxbridge Re NS sidecar in the first-quarter of 2020.

Oxbridge Re aims to use the sidecar to augment its own capacity, bringing third-party investor capacity into its corporate structure and enabling the investors to earn attractive returns as a result.

At the 20% to 40% of returns targeted, the Oxbridge Re NS sidecar is more of a working layer vehicle, but in relatively loss free years that makes for strong investment performance from a reinsurance linked vehicle.

It will be interesting to see how much more support Oxbridge Re can secure for the 2020-1 issuance from the sidecar vehicle and the high returns generated in 2019 are certain to help it generate more investor interest in supporting the structure.

For more details on reinsurance sidecar investments view our directory of collateralized reinsurance sidecar transactions.