Insurance holding company W. R. Berkley Corporation has launched its first foray into third-party reinsurance capital management with the set-up of a Bermuda based special purpose insurer (ILS) named Lifson Re Ltd. that will act as a kind of P&C reinsurance sidecar structure for the company.
Lifson Re Ltd. has been licensed by the Bermuda Monetary Authority and will assume a chunk of W. R. Berkley’s property and casualty reinsurance portfolio on a fully collateralized basis.
The Lifson Re sidecar has been capitalised to the tune of $250 million of equity by what W. R. Berkley called a “small group of sophisticated global investors with long-term investment horizons.”
To maintain an alignment with these investors, W. R. Berkley itself has a minority participation in the equity of Lifson Re Ltd.
It’s the first time W. R. Berkley has ventured into the insurance-linked securities (ILS) space with a managed vehicle of any description.
So it represents the first time the company has elected to bring additional capital into its reinsurance underwriting business, leaning on third-party investors to boost its own capacity.
That’s likely driven by the opportunity at this time, as with reinsurance rates firming considerably W. R. Berkley appears set to increase its reinsurance writings with the support of this third-party capital supplied through the Lifson Re sidecar structure.
Lifson Re Ltd., like any reinsurance sidecar structure, will participate, alongside the firm’s reinsurance partners, in a broad portfolio of property and casualty reinsurance treaties ceded by W. R. Berkley subsidiaries on a fully-collateralized basis starting January 1st 2021, the company said.
It’s not clear exactly what is meant by a “broad portfolio”, but that could suggest that Lifson Re has a remit that extends more broadly than just property catastrophe risks alone.
Also, the fact W. R. Berkley notes the long-term horizon of the investors backing the Lifson Re sidecar vehicle, could suggest that there are longer-term risks involved than just the shortest-tail catastrophe exposures.
Lifson Re’s assets are set to be managed by an affiliate of W. R. Berkley Corporation, the company also explained.
W. Robert Berkley, Jr., President and CEO of W. R. Berkley Corporation, commented on the news, “The creation of Lifson Re is part of an important strategic initiative to efficiently manage our risk and capital. This venture is a significant step forward in allowing us to partner with knowledgeable third-party capital that has extensive experience in the insurance industry.
“Over the past several years, we have considered a variety of opportunities to partner with alternative capital sources. Lifson Re is a natural fit with our business and complements our strong, long-standing relationships with traditional reinsurance partners. Through a unique long-term arrangement, Berkley will be the sole source of risk ceded to Lifson Re, providing Lifson Re’s investors with access to an attractive, specialized and diverse book of insurance risk.”
As a result, it seems that Lifson Re will act as a traditional sidecar, playing a role in W. R. Berkley’s reinsurance program tower, with capital supplied by third-party investors. Although perhaps on a slightly longer-tailed basis than some sidecars do.
Of course, this effectively acts as an extension of the company’s own capital and capacity, allowing W. R. Berkley to write more risk on its own capital, while earning fee income through ceding some of that business to an efficient and managed third-party source of reinsurance.
Find details of numerous reinsurance sidecar investments and transactions in our directory of collateralized reinsurance sidecars transactions.