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The Chairman and Chief Executive Officer (CEO) of collateralised reinsurer Oxbridge Re Ltd., Jay Madhu, explained that the firm’s recently launched sidecar vehicle diversifies its revenue streams and risk.
Oxbridge Re announced plans for its sidecar vehicle, Oxbridge Re NS Ltd., in late 2017 after registering the company in the Cayman Islands in December of 2017 as an exempted company.
The company’s Chairman and CEO said earlier this year that its newly licensed sidecar vehicle, which essentially enables the company to access capital markets capacity to augment its underwriting structure, shows that the firm has ambitions to be more of an asset manager.
Speaking later in 2018, Madhu explained how the sidecar vehicle, which has the job of issuing participating notes for third-party, or capital markets investors, benefits its parent.
“In return, Oxbridge Re receives a marginal management fee in exchange for handling the portfolio as well as a share in the profitability.
“We feel the opportunities represented by Oxbridge Re NS, while being able to receive attractive returns in a loss-free year, gives us the ability to diversify our revenue stream as well as risk. We believe that over time, this could be accretive to shareholder value,” said Madhu.
Positioning access to third-party capital and having the vehicles to take advantage of this as “accretive to shareholder value” is telling.
A reinsurer without a third-party capital vehicle is increasingly looked on as behind the times. While those utilising third-party capital to augment their capacity and earn fees are seen as keeping up with them.
Of course it’s not all plain sailing managing institutional investors capital, especially when there are losses to deal with.
The reinsurer announced in November that its fully collateralised sidecar vehicle was facing a 55% loss of principal as a result of the impacts of hurricane Michael, driven by losses under the quota share arrangement between the reinsurer and the sidecar.
Oxbridge Re NS enables the reinsurer to bring third-party investor capital into the reinsurance company in an efficient manner, while providing the capital markets investors with a means of accessing the reinsurance underwriting returns.
“Moving forward, we continue to underwrite contracts opportunistically while diversifying revenue streams and maintain a conservative long-term outlook,” said Madhu.