Insurer Lancashire seeks $250 mln to underpin reinsurance cover
LONDON Nov 6 (Reuters) - Insurer Lancashire Holdings Ltd is to seek $250 million from outside investors to take advantage of high demand from financial backers to invest in the reinsurance sector.
Investors have turned their attention to reinsurance, which covers insurance companies looking to unload risk, attracted by its market-beating returns and low exposure to faltering economic growth in the United States and Europe.
Lancashire, a member of the Lloyd's of London insurance market, said it would raise the fresh funds through a special purpose vehicle (SPV), a tried and tested method which gives outside investors exposure to potentially lucrative business lines without diluting a company's existing shareholders.
Demand for such flexible instruments has risen sharply following the hefty claims generated by a last year's natural disasters - such as the Japanese earthquake in March which inflicted a $116 billion loss on insurers - as insurers seek to top up their capital to cash in on rising catastrophe insurance prices.
Insurers have since seen a heightened demand from investors for similar products, as more financial backers look to the reinsurance sector to boost returns and avoid some of the swings that have plagued stock and bond markets in recent years.
Lancashire said it would raise the cash through a Bermuda-based SPV - also known as a "sidecar" - allowing it to share the risks of certain policies with investors who in turn receive a portion of the premiums.
The SPV, called Saltire Re, will underwrite a range of reinsurance products specifically for the January renewals - when it renews billions of pounds worth of contracts with its insurance company clients at the start of 2013.
This frees up capital for Lancashire to underwrite new insurance business.
The $250 million in capacity will be owned by a syndicate of investors and Lancashire itself will invest approximately $33 million in Saltire Re I, the insurer said in a statement.
Around $1.4 billion in sidecar capacity has been raised by insurers since 2011, including Lancashire's own vehicle, Accordion Re, which covers global property "retrocession" business or the passing on of reinsurance risks to other reinsurers.
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