Bermuda based reinsurer PartnerRe Ltd. has become the latest to launch a third-party capital management play with the announcement late yesterday of a new reinsurance sidecar called Lorenz Re Ltd. The sidecar, or companion facility as PartnerRe has called it, is a Bermuda domiciled Special Purpose Insurer registered on the 5th February. Lorenz Re has been capitalised with $75m from investors via issuance of a number of classes of preference shares.
Lorenz Re is a multi-year SPI facility that will allow PartnerRe to participate in the investor backed collateralized reinsurance market on a flexible, semi-permanent basis. It’s likely not purely an opportunistic sidecar, as many have been historically, the market environment would suggest otherwise and it will allow PartnerRe to establish a strategy for managing third-party capital within a reinsurance underwriting vehicle over a multi-year period. This approach allows reinsurers to begin developing a platform for leveraging third-party capital without committing to a full fund management launch.
Lorenz Re has been capitalised through the issuance of multiple classes of preference shares to investors, according to PartnerRe’s press release. By using multiple share classes the reinsurer will have been able to give investors access to differing levels of risk and return within the same sidecar vehicle, dependent on share class subscriptions, if they wanted to.
In this way the use of an SPI as a sidecar vehicle is similar for investors to many of the listed, and unlisted, reinsurance-linked funds which feature multiple share classes and utilise a reinsurance vehicle for the underwriting. Lorenz Re is likely a more cost-effective facility to establish and allows PartnerRe to access this strategy with lower friction.
Lorenz Re will provide PartnerRe with additional underwriting capacity which will be deployed across a diversified portfolio of catastrophe reinsurance treaties over the multi-year period. So PartnerRe can treat Lorenz Re like an extension of its underwriting capital thus growing its capacity for its clients, while benefitting from new sources of capital from external investors, a share in the premium income and the fee income that management of these funds will generate.
Costas Miranthis, President and CEO of PartnerRe commented; “Lorenz Re allows us to provide additional capacity to a number of our clients while optimizing the deployment of our capital. Investors will benefit from PartnerRe’s twenty years of experience and expertise in the catastrophe market, as well as access to our diversified portfolio of catastrophe risks.”
PartnerRe has had some involvement in the capital markets and convergence reinsurance sector for a while, investing in a portfolio of catastrophe bonds and ILS and acting as a fronting carrier for clients looking to leverage new capacity from the capital markets. This is its first efforts at managing third-party capital in a structured way it seems and Lorenz Re will provide a platform that will allow PartnerRe to grow this activity if it chooses.
It does seem that PartnerRe has been building up to this for some time. Back in mid-2011 CEO Costas Miranthis discussed PartnerRe’s changing attitudes to the capital markets, and said; “We’re prepared to look at things, like issuing a cat bond, or doing a sidecar or making more strategic use of retrocession, that we never looked at before.”
It’s also worth reading PartnerRe CFO William Babcock’s comments on capital flow in the reinsurance market from February this year.