Watford Re, the hedge fund style hybrid reinsurance joint venture vehicle operated by Bermudian insurance and reinsurance group Arch Capital alongside asset manager Highbridge, is now up to in excess of $400m of gross premiums written.
In Q1 Watford Re underwrote another $128.6m of premiums which takes the total since its inception for the second-quarter of 2014 to $417.3m. That’s an impressive pool of assets that has been built up for partner in the venture Highbridge Principal Strategies to invest in its various strategies.
Watford Re follows a hybrid strategy, operating a little like a reinsurance sidecar for Arch as it takes cessions from the reinsurer, leveraging third-party investor capital and on the asset side using a hedge fund style strategy thanks to asset manager Highbridge.
Watford underwrites longer-tailed lines of reinsurance business, predominantly in the casualty risks space and continues to target getting the combined ratio down to below 100. Continued progress is being made and the combined ratio for Q1 2015 came in at 100.3%, a good start to the year for the vehicle.
Interestingly though, and perhaps hinting at the type of business that Arch cedes into Watford, the vehicles loss ratio is higher than the rest of the Arch business. Which is not a concern, as the casualty risks it focuses on have a naturally higher attrition, however it does make the investment return important to make the vehicle profitable.
In the first-quarter of the year it seems that Highbridge achieved investment income of $8.706m, which is lower than Q4 last year. This performance, alongside the near 100 combined, allowed Watford Re to return income of $2.541m to Arch shareholders.
In terms of total investable assets, Arch now reports that Watford Re has almost $1.268 billion at its disposal, which is an impressive sum that can be put to work in Highbridge’s asset management work.
So, while Watford Re is getting increasingly profitable and shows signs that the investment income, when returns are good, will continue to grow, it is also continuing to allow Arch to optimise its book which is key to the strategy in this challenging market.