Hiscox Lloyd’s Syndicate ‘in Discussions’ on Bermuda Sidecar

September 5, 2006

The U.K.’s Hiscox plc announced that its Board of Directors, is “in discussions which could lead to the creation of a new reinsurer, which will only reinsure Hiscox Syndicate 33,” which it manages, and in which it has a 72.5 percent interest.

Hiscox said it’s considering setting up the sidecar to “take advantage of expected underwriting conditions.” If the transaction proceeds, “investors will capitalize a newly established Bermuda reinsurer which would enter into a quota share reinsurance arrangement with Syndicate 33 in respect of its 2007 and possibly the 2008 Lloyd’s years of account,” the bulletin continued.

Hiscox established a Bermuda-based subsidiary last year, which writes a balanced business mix of reinsurance and retail business (See IJ Website Nov.14, 2005). Its outspoken Chairman, Robert Hiscox, has often stated that the speed and efficiency of the Bermuda market provides a more favorable business environment than Lloyd’s is able to offer.

The announcement gave the following details on the contemplated transaction: “The reinsurance treaty is likely to be for a fixed share of Hiscox Syndicate 33’s own reinsurance account, though the final business mix has not yet been finalized. The new vehicle will be capitalized by a mixture of debt and equity. Hiscox will not be an investor in the new vehicle.

“Hiscox Syndicate 33 will benefit by earning ceding and profit commissions typical in quota share arrangements. If the reinsurance transaction is not structured as a Lloyd’s Qualifying Quota Share, then it is likely that Hiscox Syndicate 33 will pre-empt its 2006 capacity of £833m by up to 10% for the 2007 year of account. Hiscox and Lloyd’s are in ongoing discussions on the final structure and the capital implications of the proposed quota share. Hiscox Syndicate 33 will be required to enter into customary indemnity and hold harmless arrangements with the various advisers to the new vehicle.

“Further details will be announced in due course.”

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