A New York rating firm surfaced details Friday concerning a pair of the financial vehicles known as sidecars used to fund two Bermuda reinsurers.
Standard & Poor's Rating Services issued ratings for loans and debt obligations for Starbound Re, the Renaissance Reinsurance Limited sidecar, and for Bay Point Re, a Harbor Point Re Ltd. vehicle. Both are based in Pembroke.
A sidecar is essentially a special purpose vehicle in which third-party investors, such as hedge funds or private equity funds, collaborate with an underwriter to provide additional capacity to existing reinsurers for short-tail lines of business.
According to the details contained in S&P's ratings announcements, both of the newly formed sidecars will accepted quota share cessions of property-catastrophe business from the existing reinsurers.
For Starbound Re, S&P assigned three different ratings to bank loans–an "A-plus" to a $46.5 million loan (Debt III); a "triple-B-minus" to another $46.5 million, subordinated to the first (Debt II); and a "double-B-plus" to a third $91 million loan, subordinated to the first two (Debt I).
According to S&P, Starbound may borrow up to $184 million from a consortium of banks for a term of about 1.75 years. The entity's capital structure will also include $126.5 million of equity.
In the ratings announcement, S&P credit analyst James Brender said the assignments are based on a very remote (0.2 percent) modeled probability of even the most junior bank loan (Debt I) becoming impaired.
Other positive rating factors, he said, are Ren Re's strong competitive position and risk management, Starbound Re's predetermined exposures and risk tolerances, and very strong price increases in Florida, which is about 75 percent of Starbound Re's exposure.
He added that the positive factors are partially offset by Starbound's significant concentration of risk in Florida.
According to details revealed by S&P, Ren Re will retain a minimum of 20 percent of the premium from a defined selection of its property-catastrophe business ceded to Starbound through a quota share reinsurance treaty.
Currently, RenaissanceRe Holdings Ltd., the holding company for Renaissance Reinsurance Limited, writes property-catastrophe reinsurance through several operating units–Renaissance Reinsurance Limited, Top Layer Re and DaVinci, a sidecar set up in 2001.
For Harbor Point's new sidecar, Bay Point Re Ltd., S&P has assigned a "double-B" senior secured debt rating to a term loan debt facility of up to $125 million. In Bay Point Re's case, the term of the borrowing arrangement is five years, and the entity's capital structure will include an equal amount of equity.
Mr. Brender mentioned a low modeled probability of attachment among positive rating factors.
As for the specifics of the quota share reinsurance treaty with Harbor Point, S&P said that initially, the cession will be up to 50 percent, adding that the exact cession percentage will depend on Bay Point Re's collateral and Harbor Point's expected premium volume and probable maximum loss from a 1-in-100-year U.S. wind event and 1-in-250-year U.S. earthquake event.
Earlier this month, Validus Re announced that it had also formed a sidecar, Petrel Re, which will assume a 75 percent quota share of certain lines of marine and offshore energy reinsurance contracts.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.