Having seen the volume of premiums ceded to its Lifson Re collateralized reinsurance sidecar shrink during the first-half of this year, US headquartered insurance holding company W. R. Berkley Corporation caught up a little through the third-quarter, suggesting a change in timing may have driven part of the H1 decline seen.
As a reminder, we reported that for the first-half of 2024 W. R. Berkley ceded $206 million of premiums to its Lifson Re sidecar, which was a decline from the $281 million ceded to the sidecar structure in H1 2023.
We explained at the time that there are a number of reasons this can occur, with P&C focused reinsurance sidecars.
While the Lifson Re sidecar takes a 30% share in all of W. R.Berkley’s P&C reinsurance or retro placements where more than one open market reinsurer participates, there are other factors to consider that might affect the amount of premiums ceded at any one point in the year.
The reasons can range from more deals being struck that only feature a single open market reinsurer on them so Lifson Re cannot access risk from these deals, to a change in pattern of the underlying business written (type, line or timing) that migh mean Lifson Re takes a little less, to considerations about capital consumption and the fact a certain amount of the Lifson Re capital will be required to support longer-tailed business and risks that are running-off.
Lifson Re is now in its fourth underwriting year and, in premiums terms, it peaked in 2023 with some $437 million of premiums ceded to the Lifson Re sidecar by W. R. Berkley over the full-year.
As a reminder, the company capitalised the Lifson Re sidecar to $380 million again for 2024, which was flat with the prior year, with backers still including Ontario Teacher’s Pension Plan and Japanese holding company MS&AD.
Having trailed 2023 premiums through the first-half by $75 million, W. R. Berkley has ceded premiums at a faster rate in Q3 it seems.
By the end of September, premiums ceded to the Lifson Re sidecar in 2024 had reached $315 million, which is still down on the prior year but not by as much, having ceded $348 million in premium to the sidecar in the first nine months of 2023.
Which suggests timing is certainly part of the reason that H1 looked to have slowed so much.
But, we still believe part of it could also be the fact Lifson Re operates as a kind of perpetual sidecar, accessing risks from across the P&C reinsurance business at Berkley and so there will be some capital consumption to consider with legacy and longer-tailed exposures.
As we’ve said before, Lifson Re has become an important source of reinsurance capital and capacity for W. R. Berkley, sitting near the top of its reinsurers in terms of amount of recoverables due to the parent.
With Lifson Re, W. R. Berkley has access to a significant pool of reinsurance capital that can be more efficient than open-market capacity, due to the economics of risk sharing and fees it can earn through the performance of the ceded business as well.
Lifson Re is a good example of how a third-party capitalised reinsurance sidecar can become a core component of a company’s risk capital arrangements, with an aligned approach that means investors stand alongside W. R. Berkley’s underwriting results.
Find details of numerous reinsurance sidecar investments and transactions in our directory of collateralized reinsurance sidecars transactions.
