Bermuda-based Harbor Point Re Limited, a subsidiary of Harbor Point Limited, announced the completion of the formation of Bay Point Re, described as “a special purpose ‘sidecar’ vehicle formed for the purpose of reinsuring certain short-tail business written by Harbor Point.”
The two entities have entered into a quota share reinsurance agreement “pursuant to which Harbor Point will cede to Bay Point 30 percent of certain lines of short-tail business written by Harbor Point for the 2006 and 2007 underwriting years,” the announcement continued. “The quota share will be collateralized by a trust established by Bay Point that will include the capital and surplus of Bay Point, as well as the ceded reinsurance premiums received from Harbor Point. Several funds managed by Golden Tree Asset Management, LP are the principal investors in Bay Point.”
Harbor Point was created as a spin-off of the reinsurance operations of Chubb Re, a subsidiary of Chubb Corp. Its initial capitalization was $1.3 billion. In the exchange for the business acquired a $200 million convertible note was issued to Chubb. The principal investors in Harbor Point are Trident III, L.P., J.P. Morgan Chase & Co and Chubb. Harbor Point manages the Trident III fund, originally set up by MMC Capital. (See IJ Website Oct. 10 and Dec. 15, 2005).
Harbor Point Limited CEO John Berger commented: “Capacity in many catastrophe-exposed lines is extremely tight. Bay Point will give us additional capacity and will be a strategic tool that allows us to capitalize on the opportunities currently available in the market, as well as those expected in the second half of the year. Bay Point’s investors will be able to participate in the attractive current market opportunities, while being fully aligned with Harbor Point through our 70 percent retention on the quota share.”
Ed note: The employment of “sidecar” vehicles has been on the increase over the last six months. They are essentially special purpose companies set up by a reinsurer and funded by both the reinsurer and outside investors – in many cases hedge funds, seeking higher returns on their capital investments. By passing a certain percentage of their risk from the operating company to the sidecar the reinsurer conserves capital and thereby increases its capacity, while still maintaining control over the business it has written. Losses are paid by agreement between the two entities, usually, as in the case of Bay Point Re, on a quota share basis.
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