A pioneering vehicle widely regarded as one of the first sidecars to be formed to write property-catastrophe reinsurance on a quota share basis is being wound up – a move that will represent a stark reminder to investors of the pitfalls of insurance-linked investments.
Olympus Re was formed in 2001 by White Mountains Insurance Group in the aftermath of the 9/11 terrorist attacks, which had drained the market of capacity.
Its $500m of capital came from investors including Franklin Mutual Advisors and hedge fund Och-Ziff Capital Management and Leucadia. Jack Byrne, the then CEO of White Mountains, also put money in.
It was hit hard in 2005 by losses stemming from the 2004 hurricanes Charley, Frances and Ivan and again a year later thanks to hurricanes Katrina, Rita, Wilma, which almost wiped out its investments.
Although it secured more interest from investors, legacy claims from these events meant it never got up and running again and White Mountains even stepped in to protect new investors from historic claims.
A general meeting of members took place on February 23 this year at which the members of Olympus Re Holdings resolved to wind up the sidecar completely. The process should be complete by mid-April.
John McKenna has been appointed as liquidator though the liabilities will likely be straight forward.
Given the proliferation of sidecars and other structures allowing investors to access insurance-linked risks in recent years, this liquidator will represent a stark reminder that the flip side of the attractive returns available in the space is that investors will also sometimes endure a complete loss of capital.
While the torrid history of Olympus Re demonstrates the pitfalls of investing in insurance-linked products, would third party investors in today’s market withdraw following a similar experience or do you believe they understand the dangers and are in for the long haul?
Olympus Re, White Mountains Insurance, Reinsurance, Insurance, North America, John McKenna