LONDON Argo Group has launched a niche reinsurance company using outside investor money, joining a spate of reinsurers looking to directly access capital market money to boost their earnings in catastrophe coverage business.
The new "sidecar" is called Harambee Re and will underwrite both reinsurance and insurance business, the U.S.-based reinsurer said in a statement.
Sidecars are set up as separate companies, where investors share the risks of certain policies with the reinsurer in exchange for a portion of the premiums. That gives them exposure to potentially lucrative business lines without diluting the company's existing shareholders.
Financial investors looking for assets less affected by the global financial crisis have grown increasingly interested in reinsurance, which provides coverage for insurance companies.
Catastrophe reinsurance, which covers huge and costly natural disasters such as U.S. earthquakes and hurricanes, is seen as uncorrelated to the performance of the wider financial markets.
Harambee Re will use investor money to underwrite around 5 percent of premium income for property portfolios for two of Argo Group's businesses: Argo Re, the group's reinsurance operation, and Colony Specialty, its excess and surplus lines segment, the group said.
This is not the first time Argo Group has used investor money to support its reinsurance business. The company has sold two catastrophe bonds to capital market backers to access extra protection against hurricanes and earthquakes in the United States, windstorms in Europe and earthquakes in Japan.
Catastrophe bonds allow insurers to pass on extreme risks, such as those related to earthquakes or hurricanes, to financial market investors, and are seen as an alternative to reinsurance.
The launch of Harambee follows similar ventures by Renaissance Re, Lancashire Holdings and Alterra Capital Holdings.
- For more details on sidecars and cat bond transactions, see the Thomson Reuters Insurance Linked Securities Community, click here
(Reporting by Sarah Mortimer; Editing by Hugh Lawson)