16 January 2013 Insurance

Argo’s first sidecar to complement portfolio

Bermudian re/insurer Argo Group has stressed that the recent sidecar it formed, capitalised by capital market investors, is very different to similar vehicles launched by rivals in that it complements the company’s core underwriting accounts instead of focusing on more opportunistic, possibly non-core business lines.

Harambee Re (Harambee means pull together in Swahili) was launched by Argo at the start of this year. Sidecars are separate companies where investors share the risks of certain policies in exchange for a portion of the premiums.

That gives them exposure to potentially lucrative business without diluting the company's existing shareholders.

This is Argo’s first sidecar. Other companies that have previously formed sidecars include RenaissanceRe, Lancashire Holdings and Alterra Capital Holdings.

But Mark Gibson, director of Alternative Risk Markets at Argo Group, says a critical difference between this and similar ventures in the market is that its underwriting scope will reflect the core portfolios of two of Argo Group’s entities.

It will support both reinsurance and insurance portfolios providing capacity of some 5 percent of premium income for specific property portfolios within Argo Re, the group’s reinsurance operation, and Colony Specialty, Argo Group’s excess and surplus lines segment.

“A big difference is that most sidecars are established, quite reasonably, by sponsors seeking to generate a supplementary revenue stream by matching their underwriting expertise with the demands of investors for certain risks and related returns,” Gibson said.

“This might be in areas where there are reinsurance market capacity constraints such as in the retro market or in peak zones such as Florida where pricing may be relatively more attractive than in other zones.

“What we have done is very different. This will help us build our core account while maintaining the level of volatility we believe is appropriate for our balance sheet.”

Gibson adds that the ability to fund and launch sidecars also represents an extra string to the bow of insurers and reinsurers – something that investors can give credit for.

“I think that it can certainly be beneficial for a company to demonstrate that it has the ability to engage with capital market investors in this way,” Gibson said.

“There are, in fact, only a handful of companies that have formed these vehicles and it is good for Argo to be able to join that list.”

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