Watford Re, the investment-oriented, total return reinsurance joint venture run by Bermudian re/insurance group Arch Capital alongside asset manager Highbridge Principal Strategies, has extended its reach with the addition of a 50 state admitted U.S. insurance carrier.
Watford Specialty Insurance Company, the U.S. domiciled surplus lines insurer and a wholly owned subsidiary of Watford Re, has acquired a shell (or previously dormant) insurance company that has admitted insurance licenses to do business in all 50 U.S. states and the District of Columbia.
The new admitted insurance carrier has been renamed to Watford Insurance Company and has been re-domesticated to New Jersey, the domicile state of Watford Specialty Insurance.
Any legacy liabilities, relating to business underwritten prior to Watford Re’s acquisition of the admitted carrier have been covered through a 100% quota share reinsurance agreement with The Hanover Insurance Company. The Hanover will not have any liability for, or interest in, future business underwritten by Watford Insurance Company.
The company explained that the acquisition “furthers Watford’s strategy of developing its insurance operations in the U.S. and provides Watford with the ability to access the U.S. admitted property and casualty insurance market in partnership with Arch Underwriters Inc., a wholly-owned subsidiary of Arch Reinsurance Company.”
The new admitted carrier, Watford Insurance Company, will work alongside program managers, aiming to offer them long-term access to highly rated re/insurance capacity. In this way the insurer will likely become a valuable origination vehicle for Watford Re, helping it to diversify where its capacity is put to work.
Watford Re began life taking a significant amount of risk from Arch, but with the new insurance platform Watford is becoming a complementary source of new risk, which can all be reinsurer back to Watford Re helping it to build its float which is invested by Highbridge.
For Watford Re, and any total return reinsurer, it is imperative to keep building the pool of investable float. The additional underwriting activity provided by the new admitted carrier will contribute to this, helping to grow a larger pool of assets to profit from when investment conditions allow.
By diversifying and adding new underwriting arms, the Watford Re platform can create an origination business which generates premium float of differing durations, from different risks, which can then be invested by Highbridge. As that premium float grows, the possibility of very profitable quarters increases, but so does the chance of negative quarters when financial market conditions are less conducive.