Third-party investors in global re/insurance firm Aspen’s collateralized reinsurance sidecar Silverton Re benefited from $8 million of income that flowed through to them from the vehicle thanks to a “relatively benign cat experience” in Q3 of 2015.
Despite the declines in reinsurance rates and pricing, collateralized sidecar investments have been returning positive income to their investors as the relatively benign global catastrophe loss environment means that few impacts have been felt this year.
That has helped Aspen to return capital to investors in its third-party capital sidecar reinsurance vehicle, which showed up as an expense in its recent quarterly results.
Group Chief Financial Officer Scott Kirk explained during the firms recent earnings call; “$8 million of the total other expenses reflects the proportion of income due to third-party investors in our sidecar Silverton Re. This amount reflects a relatively benign cat experience for Silverton Re this quarter.”
He continued, explaining to analysts that the $8 million of expenses booked due to Silverton is not down to a mark-to-market movement in valuation, but rather; “it’s more the earnings flowing through to the investors, or the third-party investors in that vehicle.”
Kirk explained that while it shows as an expense, it is offset by profits that Aspen recognises that flow through to its own benefit from other business lines.
Silverton Re investors benefited both from low catastrophe losses and also the seasonal premium flows associated with the peak of the U.S. wind season, Kirk explained.
“The way the earnings flow through they are seasonally adjusted so you do see a bit more of an uptick in the third-quarter. But if there is a benign cat quarter, and I would say benign cat in terms of our Silverton sidecar, then you would expect to see some profitability flow through there,” he commented.
The flow of income from reinsurance sidecars such as Silverton Re is not uniform across the year and fluctuates based on seasonality, catastrophe losses suffered and also the amount of capital within the vehicle.
As a result Silverton Re investors should not always expect such a high level of income to be disbursed.
For more details on reinsurance sidecar investments view our list of collateralized reinsurance sidecars.